The merger and acquisition of Kailai Ying and Zhongsheng Pharmaceutical have encountered obstacles one after another! Under the US New Deal, the internationalization of Chinese pharmaceutical companies needs real innovation!

Cross-border mergers and acquisitions of Chinese pharmaceutical enterprises have once again encountered "roadblocks"

On September 16, Nasdaq-listed F-star announced that its $161 million security review to China Biopharma (CISS) has entered the extended review phase

The public relations department of Zhongsheng Pharmaceutical responded to the new media center of the "Pharmaceutical Economic News": "According to our understanding, this project is still within the normal approval cycle

It is worth mentioning that the acquisition of SnapdragonChemistry, a leading domestic CDMO company, was also stranded

On September 19, Kailai Ying issued an announcement that due to regulatory reasons, the company and Snapdragon could not agree on future development plans and countermeasures, and decided to terminate the merger transaction

The market view believes that under the promotion of policies, technological iteration and market evolution, the development of China's medical and health industry has entered a new situation

Expand pipelines and replenish cash flow

M&A cooperation is a matter of each need

On June 22, 2022, Zhongsheng Pharmaceutical announced that its wholly-owned subsidiary, InvoX, and InvoX's wholly-owned subsidiary, Fennec, entered into a merger agreement and plan with F-star to acquire all of F-star's outstanding common shares for a total consideration of approximately US$161 million, or US$

The wholly-owned subsidiaries of Zhongsheng Pharmaceutical are required to commence the tender offer within 10 business days, but the closing of the tender offer will be subject to a number of conditions, including acceptance of the tender offer by at least a majority of F-star's shareholders who have issued outstanding common stock, obtaining the required regulatory approvals (including the expiration of the waiting period for the Hart-Scott-Rodino Antitrust Improvement Act) and other customary closing conditions

However, the acquisition was "stuck in the neck" by the US regulatory authorities

According to public information, CFIUS was established in 1975 and is an agency composed of more than ten important departments such as the U.

In the industry's view, the acquisition of F-Star by Zhongsheng Pharmaceutical is essentially a win-win relationship, but the extension of the review also means that the difficulty of the acquisition will be greatly increased

On the evening of June 23, Zhongsheng Pharmaceutical announced that it had reached a merger agreement and plans to acquire all outstanding common shares of F-star, a NASDAQ-listed company, for a total consideration of $161 million, or $

If successful, the acquisition will bring three bispecific antibodies to Zhongsheng Pharmaceutical in the clinical stage, enhance Zhongsheng Pharmaceutical's global tumor immune pipeline, and complement the pipeline portfolio

FS118, a dual-checkpoint inhibitor targeting PD-L1 and LAG-3;

FS222, a dual-targeted CD137 (4-1BB) agonist and PD-L1 inhibitor;

FS120, a dual agonist

With the advent of the global biomedical capital market winter, Biotech corporate "money bags" are getting tighter, and F-star is no exception, requiring additional financing or equity transactions to continue to

According to the annual report data, F-star's total operating income for the first quarters of 2019, 2020, 2021 and 2022 was 0, 11.

Industry insiders said that the cash assets of 60 to 70 million US dollars are not sufficient for the clinical development of a variety of macromolecular drug pipelines
, and can even be said to be stretched.
For F-star, China Biopharma's $161 million bid to acquire F-Star represents a premium of nearly 100% over its total market capitalization on June 22, 2022, and from a cash flow perspective, this fund is undoubtedly a "timely rain" on
F-Star's heart.

The overseas acquisitions of two Chinese-listed pharmaceutical companies have been blocked one after another, and some industry experts said that this means that domestic pharmaceutical companies are going international, in addition to the known technical quality, but also include many uncertain factors
.
In the future, when going international, the domestic market should play a greater role
in the development of China's innovative pharmaceutical companies.

The pharmaceutical "external circulation" market is blocked

Optimize the "internal cycle" to promote the development of the industry

The overseas merger and acquisition of Zhongsheng Pharmaceutical remains to be seen, and the abortion of the overseas acquisition of Gloria Ying has become a fact
.
On September 19, Gloria Ying disclosed that it would terminate the acquisition
of overseas company Snapdragon.
Kai Laiying said that due to regulatory reasons, Kailai Ying and Snapdragon could not agree on future development plans and countermeasures, and decided to terminate the merger transaction
.

On February 11 this year, Gloria Ying and Snapdragon reached a merger agreement to acquire all the remaining shares of Snapdragon Company except for the equity already held by Gloria Ying with about US$57.
94 million in its own funds through the merger, achieving a 100% control over
the company.

If the acquisition is successfully completed, Snapdragon will become an overseas R&D platform
for Gloria In.
At the same time, Snapdragon will also form a synergy with the Gloria Anglo-American Boston R&D Center to shorten the radius
of overseas Biotech customer service.

As for the reason for the termination of the acquisition, Kailai Ying only said in the report that it was a regulatory reason, and did not specify it
.
Some insiders have analyzed that recently, with the US policy turn, the merger and acquisition was terminated for regulatory reasons is also reasonable, after all, in the current policy environment of the United States, it is not a good time to
acquire cutting-edge biopharmaceutical companies in the United States.

On September 15, U.
S.
President Joe Biden issued an executive order requiring CFIUS to strengthen national security risk screening for foreign investment, including high-tech industries
such as semiconductors, artificial intelligence, and biotechnology.

Previously, on September 12, local time, US President Joe Biden signed an executive order encouraging the production and research of biotechnology in the United States, which contains a total of 11 policy initiatives from A-K to "ensure that the United States can manufacture and produce all products of its own invention.
"

Some overseas media interpreted the move as "responding to China's challenges in biotechnology" and hoping to reverse the past phenomenon
of some pharmaceutical manufacturing industries shifting from Europe and the United States to China due to the global division of labor.

The capital market has reacted strongly to this, and at the opening of the market on September 13, the A-share and Hong Kong CXO sectors fell across the board, especially for companies with a high proportion of overseas business, such as WuXi AppTec, WuXi Biologics, Kailaiying, Tigermed, Boteng Shares, etc.
, which directly fell to a stop or touched the stop board
.

The cross-border acquisitions of Zhongsheng Pharmaceutical and Kailai Ying have been blocked one after another, which is considered by the industry to be the aftermath
of the above two executive orders.
In fact, the test of global market expansion faced by Zhongsheng Pharmaceutical and Kailaiying is also a problem
that China's pharmaceutical companies are about to face.
However, due to the adjustment of innovative drug approval policies, the capital market, the epidemic situation and the impact of the domestic and foreign economic environment on the biomedical market, biomedical enterprises may usher in a more cautious and even slowdown in growth compared with the past two years, pharmaceutical exports have cooled down, and the market will become more rational
.

With the proposal of "accelerating the formation of a new development pattern with the domestic cycle as the main body and the domestic and international dual cycles promoting each other", the "14th Five-Year Plan" provides a new direction and new ideas
for China's pharmaceutical industry.
Through the smooth domestic circulation to attract global resource elements, to achieve the deep integration of domestic and international markets, to promote the domestic and international dual circulation to promote
each other.
Local pharmaceutical companies should give priority to basing themselves on the domestic market, but also look at the global market, and promote the internal and external markets to develop
steadily.

However, there are still shortcomings in China's biomedical industry, including some research and development fields that are still in the follow-up stage, the original innovation ability is relatively weak, and the innovation value is not high; The strategic layout of some enterprises needs to be optimized, the combination of production, education and research is not sufficient, and the core technology level of high-quality development needs to be improved; Capital market liquidity has entered a trough period, and most of the current Biotechs are highly valued
.
When the "external cycle" faces uncertainties such as geopolitical policies and trade frictions, how to further strengthen the "internal cycle" has become a problem
that the pharmaceutical industry needs to solve.