Just as Chinese officials are probing alleged underhanded sales practices of multinational pharma companies, Chinese companies are pulling out of the U.S. stock market to avoid the regulatory limelight. Simcere Pharmaceutical is the latest to do so, agreeing to go private in a $495 million buyout by a consortium that includes its founder and chairman.
Shareholders will receive $9.66 per American depository share (ADS), a 3% premium over Tuesday's closing price and 10 cents per share higher than the consortium's original offer in March. The investor group, which includes founder and chairman Jinsheng Ren, already owns about 78% of Simcere, and the company expects the transaction to close around the end of 2013.
As Reuters notes, going private allows foreign companies to dodge the heightened regulatory scrutiny that accompanies a U.S. listing. As the news service reports, in 2012, 27 China-based companies listed in the U.S. announced plans to go private, largely because U.S. government investigations of some Chinese drugmakers' questionable financial reports have dented share prices and hurt the entire group's chances to raise new money in the U.S.
But Simcere, which makes anti-cancer, cardiovascular and cerebrovascular drugs, will not be totally off the regulatory radar thanks to a couple of partnerships with Big Pharma players. This June, Bristol-Myers Squibb ($BMY) teamed up with with the Chinese pharma to develop and market the rheumatoid arthritis med Orencia SC; Bristol-Myers and Simcere had already been working together on experimental cancer treatments and cardiovascular drugs. And in 2011, Merck ($MRK) and Simcere launched a joint venture to produce and sell branded drugs for cardiovascular and metabolic diseases, with each company contributing some of its existing products.
Simcere is heading for the private sector just as Chinese authorities are conducting a very public investigation of the industry's sales practices and pricing policies. As part of an effort to secure lower healthcare prices, Chinese officials are cracking down on alleged corruption. Companies such as Eli Lilly ($LLY) and Sanofi ($SNY) have come under fire in the wake of GlaxoSmithKline ($GSK) bribery accusations worth $489 million.
Special Report: Top 10 Big Pharma investments in China