Another Chinese drug company has a foreign buyer. In a first step toward nabbing controlling interest in China's C&O Pharmaceutical, Japan's Shionogi agreed to buy a 24% stake from the company's largest shareholder for ¥14.3 billion ($185 million). Shionogi is following up that deal with a general bid for C&O shares at an 11% premium to their July 28 closing price.
The benefit to Shionogi is clear. Buying C&O would give it access not only to the company's highly profitable products, but also to its Chinese distribution network and other infrastructure. With their own government leaning hard on drug spending, expansion elsewhere has been the order of the day for Japanese drugmakers. And China's pharma market has been growing by leaps and bounds.
"Shionogi has positioned China...as the most important market to enter," the company said in a statement announcing the deal, citing the country's large population, economic growth, aging society and increasing access to healthcare coverage. Those same reasons have attracted drugmakers from around the world--Big Pharma included--promising to make competition for Chinese pharma growth quite fierce.
CIMB Research analyst Gary Ng told Reuters that C&O is "one of the very strong pharmaceutical companies" with margins of more than 60% and solid domestic operations. "In terms of production permits, if Shionogi went in on their own," Ng points out, "they might not be able to have the kind of traction that the local guys have."
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