China M&A 2019 review & 2020 outlook: Pharmaceutical and life science sectors

Report summary

2019 was an active year for China’s M&A markets. Though not as big as the deal size overseas, China’s domestic M&A deals have been generally active. Since 2015, deal value and volumes has continued to exceed US$20bn and 400 respectively every year. As disclosed, 588 M&A deals were conducted in China’s pharmaceutical and life science sectors in 2019, with a total deal value of US$25 billion, making up 6% of the global M&A (10% in 2018).

In the pharmaceutical sector, the number of M&A deals remained high with more than 400 cases with a deal value of US$22.1bn, the highest in the past 4 years. This was a result of the promotion of policies, such as nationwide volume-based procurement, dynamic adjustment to the National Drug Reimbursement List (NDRL), and encouragement of innovation, as well as the promotion of new capital market listing regulations. With the further deepening of the reform, M&A activity is expected to rise in the future.

In contrast, in the medical device sector, transaction volumes plunged to US$2.7bn, a six-year low, amid overseas M&A stagnation. However, it is worth noting that 2019 was a significant year for the medical device sector with its activeness in the capital market, where 12 companies were successfully listed in the SSE STAR market. With the newly listed companies, we expect to see a rebound in M&A.

Our further thoughts:

  • China's healthcare reform calls for cost-control integration and innovation

    In 2019, China continued to deepen its healthcare reform through the introduction of a series of policies and measures to encourage cost-control integration and innovation. Cost-control integration policies have promoted generic consistency evaluation, expanded nationwide volume-based procurement from drugs to high-value consumables, updated the NDRL, encouraged cross-regional M&A, and launched the pilot of Diagnosis Related Groups (DRG). Also, with encouraged innovation, the Marketing Authorisation Holder (MAH) system was established in the newly-revised Drug Administration Law, the pilot region of medical device MAH program has been expanded, and the registration and approval process of new anti-cancer drugs was sped up.
  • Multi-national drug companies rush to launch new drugs in China

    The Chinese market is the main driving force for the development of multi-national pharmaceutical companies. Under China’s policies of both speeding up the approval process of new drugs and controlling the cost of medical insurance, multi-national companies have increased their investments in new drugs and divested their non-core businesses.
  • Capital supports the industry development

    IPO: 
    The healthcare sector was the main driver of IPO growth in the SSE STAR market and HKEX in 2019. After including Chinese companies listed in the US, China's pharmaceutical and life science sectors’ IPO raised a total of US$6.8bn (US$4.5bn for pharmaceuticals and US$2.3bn for medical devices) in 2019.

    Private equity funds
    : In 2019, a large number of private funds participated in the financing and Hong Kong IPO cornerstone investments in China’s high-quality bio-pharmaceutical and innovative medical device companies. Meanwhile, the investment scale of private equity funds in the two areas has reached a record high of US$10bn (US$8.7bn pharmaceuticals and US$1.3bn for medical devices), providing sufficient funds for industry development.
  • COVID-19 to raise awareness of viruses and disease prevention and control, and promote R&D of new drugs, construction of basic medical facilities, and development of high-end medical devices

    With the outbreak of COVID-19, the healthcare industry has once again been very much in the public eye. In the short term, vaccines, antiviral drugs, medical protection, IVD, infectious disease research, online medical diagnosis, medical informatisation, etc. will become hot spots in the market, and this will affect the M&A of the industry in the medium and long term. The outbreak has revealed the huge gap in our knowledge of viruses and disease prevention and control, lagging-behind of R&D response, and the insufficiency of basic medical care capacity. Further investments are needed in the R&D of new drugs, construction of basic medical facilities, and development of high-end medical devices.

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Contact us

Xun Tang

China Central Transaction Services Leader, PwC China

Tel: +[86] (21) 2323 3396

Janelle Fei

Partner, PwC China

Tel: +[86] (21) 2323 5229

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