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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)DateTarget CompanyBidder CompanyRationaleAdvisors
NA28/11/2019ViGeneron GmbH (Undisclosed stake) - GermanyWuXi AppTecEdward 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
11105/09/2019Suzhou Novartis Pharmaceutical Technology Co., Ltd. (Stripping technology and drug development assets) - ChinaZhejiang Jiuzhou PharmaceuticalJiuzhou 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
701/07/2019Tigermed-BDM (45% stake) - USHangzhou Tigermed ConsultingThe transaction helped Hangzhou Tigermed Consulting build a data management and statistical analysis platform.NA
2718/05/2019Biomedical Research Models - USJoinn Laboratories (China)The transaction would help Joinn Laboratories (China) improve its brand influence and presence in the US.Buy-side LA: JunHe
NA27/11/2018Genomics Medicine - IrelandWuXi Nextcode Genomics, Wuxi Apptec's related companyThe 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 

CompanyRevenue
(Q1-Q3 19; CNY m)
R&D/RevenueCashROEM&A strategies
Wuxi AppTec9,278.54.5%4,642.610.1%It would review M&A opportunities to extend services with focuses in the UK and the US
PharmaBlock Sciences (Nanjing)464.210.8%83.318.2%1) It would push to extend services. 2) It would also push to increase presence in Europe and North America.
Pharmaron Beijing2,626.51.6%318.212.4%It would focus on investments in biomedicine companies that have innovative technologies or service platforms.
Joinn Laboratories (China)348.57.7%164.311.2%1) It would look for diversifications. 2) The company will maintain efforts to internationalize via M&A.
Porton Pharma Solutions1,081.58.3%1,273.04.6%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 Pharmaceutical1,358.34.8%586,44.9%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)1,742.57.7%309.313.7%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 Consulting2,031.04.4%2,066.716.2%1) It would keep pushing new business development. 2) It aims to provide complete CRO services.
Guangzhou Boji Medical and Biotechnological142.18.2%60.91.4%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 Medicilon198.3 (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

CompanyNameRole in the companyExperiences out of the company
Wuxi AppTecTong XiaomengNon-Executive DirectorManaging Partner, Boyu Capital Advisory
Wu YibingNon-Executive DirectorSenior Executive General Manager,Temasek Investment Consulting (Beijing)
Cai JiangnanIndependent Non-executive directorDirector, Haier Financial Leasing; Independent Director, Dian Diagnostics Group, Harmonicare Medical Holdings, and Shanghai Pharmaceuticals Holding
Liu YanIndependent Non-executive directorParter (Specialized in Securities and M&A), Tian Yuan Law Firm; Independent Director, Huaxin Cement, Yantai Chang Yu Pioneer Wine, Huatai Securities;
Feng DaiIndependent Non-executive directorIndependent 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 YongmeiIndependent directorPartner, Grandall Law Firm (Specialized in SOE M&A, cross boarder M&A)
Pharmaron BeijingLi LihuaIndependent directorLawyer, Beijing Huamao Silicon Valley Law Firm
Chen GuoqinIndependent directorSenior Partner, Beijing Shanggong Law Firm
Joinn Laboratories (China)Zhang RuimingIndependent directorDeputy General Manager, Beijing Yidu Zhengkang HealthTechnology; He worked at CFDA, responsible for pharmacology and toxicology review
Sun YunxiaIndependent directorShe has over 20 years of experiences in drug safety evaluation
Porton Pharma SolutionsJohnson YN LauDirectorChairman, CEO, Athenex; Independent Director, C-Mer Eye Care; Director, Avalon Biomedical
Feng HongtaoDirectorChairman, Wuxi Hodgen Technology; Deputy manager, China Merchants Group Capital Investment
Lai JihongIndependent directorPartner, Zhonglun Law Firm (specialized in capital market, private equity)
Zhejiang Jiuzhou PharmaceuticalWang BinDirector, VPHe 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 JieIndependent directorDeputy Dean of Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University. He is specialized in M&A and corporate governance.
Asymchem Laboratories (Tianjin)Li XinggangIndependent directorManaging Director, Investment Banking Department, First Venture Securities
Zhang KunIndependent directorIndependent Director, Jiuzhitang; Partner, ShineWing Certified Public Accountants
Hangzhou Tigermed ConsultingZheng BiyunIndependent directorPartner, DeHeng Law Offices (specialized in corporate bankruptcy, corporate restructuring and M&A)
Guangzhou Boji Medical and BiotechnologicalShu XiaowuDirectorChief Investment Officer, Fortune Venture Capital
Shanghai MedicilonYi BaxianIndependent directorManaging Partner, VP, Shanghai Pudong Technology Investment

Potential European/US Targets in the Medical/Pharma/Biotech Spaces

CompanyFinancialsNotes
Proteon Pharmaceuticals - PolandNASeeks to raise additional EUR 8m in Series B round
MedInnovation - GermanyNASeeks EUR 10m for validation studies on cancer diagnostic platform by 2Q20
PCI Pharma Services - USEBITDA: USD 150mGears up to explore a sale this year; Jefferies and Morgan Stanley are advising the company
StemoniX - USNumber of employee: 40Looks to raise up to USD 35m Series C, eyes IPO in 12-18 months
Xilis - USNASeeks for Series A to advance cancer technology trials
Abzena - UKFY18 revenue: GBP 22mHeld by US-based private equity firm Welsh, Carson, Anderson & Stowe for 19 months
Aquilant - UKFY17 EBIT: USD 6.4mHeld by Netherlands-based private equity firm H2 Equity Partners for 19 months
Aadi Bioscience - USRaised USD 23m in exchange for over 30% its stakeHeld by a group of investors led by Chinese PE firm Hermed Capital for 34 months
Edenbridge Pharmaceuticals - USValuation: USD 15mHeld by US-based PE firm Tailwind Capital Group for 38 months
Elstar Therapeutics - USRaised USD 39m in exchange for over 30% its stakeHeld by US-based PE firm Apple Tree Partners for 26 months

 

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