China Outbound CRO Sector Preview
This preview identifies a list of active Chinese buyers in the Contract Research Organisation (CRO) space that could look at European/US targets.
Market overview
The pharmaceutical and medical device manufacturers’ increasing tendency to outsource R&D activities and the rising number of clinical trials will help the global contract research organization (CRO) market reach USD 55.3bn by 2024, up from USD 34.5bn in 2018, according to research firm Market Watch. CROs provide contract-based outsourcing services to the pharmaceutical, biotechnology, and medical device companies.
The sector is growing particularly fast in Asia Pacific, especially in China and India, due to the region's vast and diverse patient pool and development in healthcare infrastructure. China's amended Drug Administration Law (effective on 01 December 2019) will make it easier for drugs to come to market, and China's CRO industry is expected to grow from CNY 6.9bn in 2018 to CNY 24.3bn by 2025, according to intelligence service provider Reportlinker.
As global pharmaceutical companies' ramp up their growth efforts in China, co-operations with local CROs will also increase. Last December, Novartis [NYSE: NVS] of Switzerland decided to shift the focus of its R&D site in Shanghai to drug development including early clinical development and trials.
Amid increasing cost of research trials, lack of skilled professionals, and customer reluctance to depend on a single supplier, Chinese CROs have been increasing investments on experimental facilities and talent, upgrading project management processes, and seeking expansion via M&A.
Top Chinese CRO players have made 60 acquisitions worth a combined USD 2.3bn since 2014, according to Mergermarket data. Consolidation between upstream and downstream companies to provide complete CRO services and meet the R&D requirements of large pharmaceutical companies is at the source of intense market competition between domestic players, according to CRO company Joinn Laboratories (China) [SHA:603127].
Amid the country's efforts to speed up the development of digital healthcare since 2018, Chinese CROs are seeking buys in the areas of big data management, AI and telemedicine to help improve their clinical trials performance, said clinical trials services provider Hangzhou Tigermed Consulting [SHE:300347]. The company and domestic diagnosis company Dian Diagnostics Group [SHE:300244] have both participated in two Phase III clinical research projects related to Radixivir, which may treat COVID-19.
The virus outbreak over the last two months has led the Chinese government to push R&D of antiviral drug trials, preventative vaccines while taking actions to control the spread of the virus. In the wake of COVID-19, the government is anticipated to institute sweeping reforms focused on greater access to high-quality care, cost management, product innovation and further digitalization across the healthcare system. With their R&D focus, CROs will have more buy-in from the government, as well as pharma & medtech companies, and play an important role in the push for healthcare innovation, according to a recent report from Bain & Company.
Recent deals
Cross-border M&A deals with Chinese CRO buyers
| Deal Value (USD m) | Date | Target Company | Bidder Company | Rationale | Advisors |
|---|---|---|---|---|---|
| NA | 28/11/2019 | ViGeneron GmbH (Undisclosed stake) - Germany | WuXi AppTec | Edward Hu, Co-CEO of WuXi AppTec, commented that target's technologies will generate superior gene therapy products to treat a wide range of diseases that are traditionally difficult to treat. | NA |
| 111 | 05/09/2019 | Suzhou Novartis Pharmaceutical Technology Co., Ltd. (Stripping technology and drug development assets) - China | Zhejiang Jiuzhou Pharmaceutical | Jiuzhou would increase presence in Europe and North America via the transaction. It is also expected to help Jiuzhou expand innovative drugs CDMO one-stop services. | Buy-side FA: Citi Orient Securities |
| 7 | 01/07/2019 | Tigermed-BDM (45% stake) - US | Hangzhou Tigermed Consulting | The transaction helped Hangzhou Tigermed Consulting build a data management and statistical analysis platform. | NA |
| 27 | 18/05/2019 | Biomedical Research Models - US | Joinn Laboratories (China) | The transaction would help Joinn Laboratories (China) improve its brand influence and presence in the US. | Buy-side LA: JunHe |
| NA | 27/11/2018 | Genomics Medicine - Ireland | WuXi Nextcode Genomics, Wuxi Apptec's related company | The transaction would help Wuxi to expand its business in genomic research and advanced life sciences segment. | Buy-side LA: Haynes and Boone Sell-side LA: Arthur Cox |
Companies to follow
Details of Chinese CRO-sector buyers
| Company | Revenue (Q1-Q3 19; CNY m) | R&D/Revenue | Cash | ROE | M&A strategies |
|---|---|---|---|---|---|
| Wuxi AppTec | 9,278.5 | 4.5% | 4,642.6 | 10.1% | It would review M&A opportunities to extend services with focuses in the UK and the US |
| PharmaBlock Sciences (Nanjing) | 464.2 | 10.8% | 83.3 | 18.2% | 1) It would push to extend services. 2) It would also push to increase presence in Europe and North America. |
| Pharmaron Beijing | 2,626.5 | 1.6% | 318.2 | 12.4% | It would focus on investments in biomedicine companies that have innovative technologies or service platforms. |
| Joinn Laboratories (China) | 348.5 | 7.7% | 164.3 | 11.2% | 1) It would look for diversifications. 2) The company will maintain efforts to internationalize via M&A. |
| Porton Pharma Solutions | 1,081.5 | 8.3% | 1,273.0 | 4.6% | 1) The company has been pushing new business development. 2) It is actively pushing its CRO business development with a view to bolstering sales growth. 3) It would also extend CMO services to manufacture preparations. |
| Zhejiang Jiuzhou Pharmaceutical | 1,358.3 | 4.8% | 586,4 | 4.9% | 1) The company has been pushing new business development. 2) It has set up an investment fund to review M&A opportunities. |
| Asymchem Laboratories (Tianjin) | 1,742.5 | 7.7% | 309.3 | 13.7% | 1) It aims to extend its business lines. 2) The company would look to enter Japan and Australia via providing services to small-sized biotech companies and start-ups. |
| Hangzhou Tigermed Consulting | 2,031.0 | 4.4% | 2,066.7 | 16.2% | 1) It would keep pushing new business development. 2) It aims to provide complete CRO services. |
| Guangzhou Boji Medical and Biotechnological | 142.1 | 8.2% | 60.9 | 1.4% | 1) It would review upstream/downstream companies to help extend services and increase overseas presence. 2) It has set up investment fund to review healthcare sector targets. |
| Shanghai Medicilon | 198.3 (1H19) | 5.6% (1H19) | 151,7 (1H19) | 12.6% | The company would push to increase overseas presence. |
Chinese CROs Business Breakdown
(Chinese) Individuals who have influences in domestic CRO sector
| Company | Name | Role in the company | Experiences out of the company |
|---|---|---|---|
| Wuxi AppTec | Tong Xiaomeng | Non-Executive Director | Managing Partner, Boyu Capital Advisory |
| Wu Yibing | Non-Executive Director | Senior Executive General Manager,Temasek Investment Consulting (Beijing) | |
| Cai Jiangnan | Independent Non-executive director | Director, Haier Financial Leasing; Independent Director, Dian Diagnostics Group, Harmonicare Medical Holdings, and Shanghai Pharmaceuticals Holding | |
| Liu Yan | Independent Non-executive director | Parter (Specialized in Securities and M&A), Tian Yuan Law Firm; Independent Director, Huaxin Cement, Yantai Chang Yu Pioneer Wine, Huatai Securities; | |
| Feng Dai | Independent Non-executive director | Independent Non-executive director, Sling Group Holdings; Managing Director, PINE & CYPRESS Investment (H.K.); Chairman, Wuxi Angelalign Medical Equipment Technology; Vice Chairman, CareStream Dental | |
| PharmaBlock Sciences (Nanjing) | Zeng Yongmei | Independent director | Partner, Grandall Law Firm (Specialized in SOE M&A, cross boarder M&A) |
| Pharmaron Beijing | Li Lihua | Independent director | Lawyer, Beijing Huamao Silicon Valley Law Firm |
| Chen Guoqin | Independent director | Senior Partner, Beijing Shanggong Law Firm | |
| Joinn Laboratories (China) | Zhang Ruiming | Independent director | Deputy General Manager, Beijing Yidu Zhengkang HealthTechnology; He worked at CFDA, responsible for pharmacology and toxicology review |
| Sun Yunxia | Independent director | She has over 20 years of experiences in drug safety evaluation | |
| Porton Pharma Solutions | Johnson YN Lau | Director | Chairman, CEO, Athenex; Independent Director, C-Mer Eye Care; Director, Avalon Biomedical |
| Feng Hongtao | Director | Chairman, Wuxi Hodgen Technology; Deputy manager, China Merchants Group Capital Investment | |
| Lai Jihong | Independent director | Partner, Zhonglun Law Firm (specialized in capital market, private equity) | |
| Zhejiang Jiuzhou Pharmaceutical | Wang Bin | Director, VP | He worked as senior operating manager at Wuxi Apptec (Jinshan Branch), senior business development manager at Toronto Institute of Pharmaceutical Technology, and senior BD manager at Shanghai ChemPartner |
| Pan Jie | Independent director | Deputy Dean of Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University. He is specialized in M&A and corporate governance. | |
| Asymchem Laboratories (Tianjin) | Li Xinggang | Independent director | Managing Director, Investment Banking Department, First Venture Securities |
| Zhang Kun | Independent director | Independent Director, Jiuzhitang; Partner, ShineWing Certified Public Accountants | |
| Hangzhou Tigermed Consulting | Zheng Biyun | Independent director | Partner, DeHeng Law Offices (specialized in corporate bankruptcy, corporate restructuring and M&A) |
| Guangzhou Boji Medical and Biotechnological | Shu Xiaowu | Director | Chief Investment Officer, Fortune Venture Capital |
| Shanghai Medicilon | Yi Baxian | Independent director | Managing Partner, VP, Shanghai Pudong Technology Investment |
Potential European/US Targets in the Medical/Pharma/Biotech Spaces
| Company | Financials | Notes |
|---|---|---|
| Proteon Pharmaceuticals - Poland | NA | Seeks to raise additional EUR 8m in Series B round |
| MedInnovation - Germany | NA | Seeks EUR 10m for validation studies on cancer diagnostic platform by 2Q20 |
| PCI Pharma Services - US | EBITDA: USD 150m | Gears up to explore a sale this year; Jefferies and Morgan Stanley are advising the company |
| StemoniX - US | Number of employee: 40 | Looks to raise up to USD 35m Series C, eyes IPO in 12-18 months |
| Xilis - US | NA | Seeks for Series A to advance cancer technology trials |
| Abzena - UK | FY18 revenue: GBP 22m | Held by US-based private equity firm Welsh, Carson, Anderson & Stowe for 19 months |
| Aquilant - UK | FY17 EBIT: USD 6.4m | Held by Netherlands-based private equity firm H2 Equity Partners for 19 months |
| Aadi Bioscience - US | Raised USD 23m in exchange for over 30% its stake | Held by a group of investors led by Chinese PE firm Hermed Capital for 34 months |
| Edenbridge Pharmaceuticals - US | Valuation: USD 15m | Held by US-based PE firm Tailwind Capital Group for 38 months |
| Elstar Therapeutics - US | Raised USD 39m in exchange for over 30% its stake | Held by US-based PE firm Apple Tree Partners for 26 months |
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