Flushed With Cash, Shanghai Pharma Hunts for M&A in the U.S. and Europe

Shanghai Pharmaceuticals is looking to buy companies in the U.S. and Europe. This acquisition strategy is part of its two-pronged approach to growth, along with internal research and development. The company’s focus is on digestive, metabolic, cardiovascular, infectious diseases, central nervous system and mental disorders.

At the recent J.P. Morgan Healthcare Conference in San Francisco, company chairman Zhou Jun told the South China Morning Post, "We are deploying more people and financial resources to do our own research and development, and are also seeking to gain technology and market access through the short-cut route of acquisitions."

Shanghai Pharmaceutical Holding has dual listings in Shanghai and Hong Kong, S.A.R., China’s stock exchanges. Its core business is pharmaceuticals, and handles research and development, manufacturing, distribution and retailing. The company reported 120.8 billion RMB in 2016, or about $18.97 billion (U.S.).

At its technical core is its Central Research Institute to handle its research and development. It owns one state-level Corporate Technology Center and 10 provincial or city-level Corporate Technology Centers. It has registered 319 patents.

The company spends between $100 million to $150 million (U.S.) annually on research-and-development, about 15 to 20 percent of its profit.

In November 2017, Shanghai Pharmaceuticals announced the acquisition of U.S. pharmaceutical distributor Cardinal Health’s China operations for about $557 million. That deal makes Shanghai Pharmaceuticals the biggest distributor in China for imported drugs and second largest in overall pharmaceutical distribution. Cardinal is the third biggest pharmaceutical in the U.S. and prior to the sale, eighth largest in China.

The company made a major overseas acquisition in late 2016 when it acquired 60 percent of Vitaco, an Australian healthcare products supplier. It paid $146.7 million (U.S.). It is also looking at partnerships or acquisitions in Israel and Europe, primary Germany and France, for generic drug manufacturing and new drug development.

The South China Morning Post asked Jun if the U.S. government’s increased scrutiny of Chinese business acquisitions on the basis of national security would have a negative effect on its plans. "We do not necessarily have to buy out U.S. firms," Jun responded, "we can first become their shareholder and business partner to explore synergies in market and product development … and we intend to keep the targets’ management team and operating systems after such potential acquisitions."

The company also plans to develop relationships with financial institutions and industry investors to create a "very big" biotechnology fund that can be used to invest in mid to advanced-stage drug development projects.

Key Gazette writes, "Shanghai Pharmaceuticals Holding Co., Ltd., together with its subsidiaries, researches, develops, makes, distributes, and retails pharmaceutical and healthcare products in the People’s Republic of China. The company has a market cap of $63.65 billion. It operates through Production, Distribution, Retail, and Others division. It has a 15.83 P/E ratio."

There’s no indication if there’s any particular disease area it might focus on in terms of acquisitions, and its current interests are extremely varied. It is notable, that the two big non-Chinese acquisitions to date are in distribution.