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by Richard Daverman, PhD
ChinaBio Today



Acquisitions in the Future

As expected, a group affiliated with Legend Holdings will acquire Shijiazhuang Pharmaceutical Group (SPG), the sixth-largest pharmaceutical company in China. SPG, which is currently state-owned, will be bought by H Fund, a $580-million private equity fund led by Legend Holdings and Goldman Sachs (GS). These two heavyweights are joined by 24 additional international and domestic investors.

Earlier, it was reported that Legend was the only bidder in the running to win SPG (see story)

H Fund paid 870 million yuan ($114 million), an amount that was 3.6% higher than the minimum bid price set by the government. H Fund committed itself to investing an additional 5 billion yuan ($640 million) over the next five years with the goal of growing the revenues of SPG to 15 billion yuan ($1.9 billion) in that period. Last year, SPG posted revenues of 6 billion yuan. SPG also holds a more than 50 percent stake in China Pharmaceutical Group, which is listed on the Hong Kong Exchange.

This was the third-largest takeover of a Chinese pharmaceutical company in the last twelve months. Bayer bought the over-the-counter business of Top Sun last October, paying 1.07 billion yuan ($137 million). And a state-owned conglomerate, China Resources Group, took over the large ailing drug Sanjiu Group in April.

In 2005, another group led by Legend Holdings and Goldman Sachs made an investment in Simcere (SCR), paying 210 million yuan ($27 million) for a 31% stake in the company. Simcere used the money to buy its anti-cancer drug, Endu. Earlier this year, Simcere staged a very successful IPO and currently trades on the NYSE (see story).

Apparently, the expected growth in SPG will come mainly through further acquisitions. In his statement about the SPG purchase, Liu Chuanzhi, chairman of Legend Holdings, said, “China's pharmaceutical industry has huge potential, but enterprises are quite small and the industry is highly fragmented, so this provides a possibility for the consolidation in the market." While this statement does not commit SPG to an acquisition strategy, it seems clear that buyouts - not R&D or larger production facilities - will be the path of the future for SPG.

China currently has an estimated 5,000 pharmaceutical companies, whose consolidated revenues are only one-third bigger than those of Pfizer (PFE), the biggest pharma in the world. And the total profits of all 5,000 Chinese pharmas are less than those of Pfizer.



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