Still Hope for Novartis's $125 Million Acquisition of Zhejiang Tianyuan?

Nov.23.10 | About: Novartis AG (NVS)

On November 3, 2009, Novartis (NYSE: NVS) announced it would pay $125 million for an 85% stake in vaccine maker Zhejiang Tianyuan Bio. One year later, the transaction has still not been approved, casting some doubt over whether it will ever be closed. Although the deal stipulated just one year for completion, it also locked up Zhejiang Tianyuan for 18 months, implying that the acquisition is not completely dead.

There is some speculation that China authorities want more technical support from Novartis, while Novartis wants more financial incentives from the government. These rumors are attributed to unnamed sources, and no official spokespeople have commented on the situation.

Tianyuan has an order for 20 million doses of swine H1N1 influenza vaccine. Novartis supplied 150 million doses of the H1N1 vaccine during last year’s outbreak, showing how closely the companies fields of expertise are to each other.

According to sources, Tianyuan produced about $25 million in revenue during 2009.

Novartis is very active globally in the vaccine sector, so its interest in Zhenjiang Tianyuan is easy to understand. As China expands healthcare to its rural population, basic public health products like vaccines are expected to be one of the main initiatives, with growth predicted at double-digit levels. It is, therefore, an expedient initiative for expanding Novartis’ China revenues.

Tianyuan’s major product is a flu vaccine, though it also manufactures vaccines for hemorrhagic fever with renal syndrome (prevalent primarily in East Asia), Japanese encephalitis and meningococcal meningitis. It has three new vaccines awaiting approval, and the company reports that another five vaccines are in development.

Disclosure: None