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Novartis/Tianyuan transaction still pending

By Sisi Yang, GBI Analyst

Over one year and still waiting: Novartis’ bid to acquire an 85% stake in Zhejiang Tianyuan Bio-Pharmaceutical Co., Ltd., the second largest producer of H1N1 vaccine in China (second only to Hualan Biological Engineering) continues to languish one year after Novartis submitted its application to the Ministry of Commerce (MOFCOM) in November of 2009. The deal is part of a strategic initiative to build a China vaccines industry leader and expand the company’s presence in this fast-growing market segment. The USD 125 million (approximately RMB 850 million) deal, which could be the largest acquisition in China’s vaccine industry, has yet to receive regulatory and government approvals.

 

Novartis, the world’s fifth largest vaccine manufacturer as well as the second largest influenza vaccine manufacturer, failed to receive approval to manufacture H1N1 vaccines in China (along with other multinationals, e.g. Glaxosmithkline), forcing Novartis to attempt to bypass the regulatory approvals via acquisition of a Chinese domestic pharmaceutical company. Multinational pharmas’ foiled attempts to enter into China’s vaccines sector might be due to MOFCOM’s concern over public health and national security. Additionally, there is a perception that the Chinese government did not receive the technology support it was expecting from multinational companies at the outbreak of H1N1, cooling regulatory attitudes towards these players. At present four months remain on the agreement’s 18-month lock-up period.

 

China is the world’s third largest vaccine market, with an industry sales volume over USD 1 billion. Novartis’ global vaccine portfolio covers diseases including rabies, tickborne encephalitis (TBE), typhoid, cholera, and hepatitis A, but has only received approvals for influenza and rabies vaccines in China. The acquisition of Zhejiang Tianyuan Bio-Pharmaceutical Co., Ltd. represents an opportunity for Novartis to more fully enter China’s vaccine sector. Dr. Daniel Vasella, Chairman and CEO of Novartis, has mentioned Novatis’ future activities with Tianyuan are an important step in their strategy to enhance the prevention of diseases in China with high-quality products. Along with its acquisition of Alcon and Ebewe (injectable cancer medicines), the Tianyuan transaction would allow Novartis to potentially diversify its product portfolio and exploit a current market opportunity which could be a source of future growth.

 



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.