HONG KONG – Just one month after its $764 million initial public offering (IPO) in Hong Kong, leading Chinese pharmaceutical company Luye Pharma took a significant expansionary step with the acquisition of Beijing Jialin Pharmaceutical.
In an Aug. 27 filing with the Hong Kong Stock Exchange (HKEx), Luye announced plans to acquire a 57.98 percent stake in Beijing Jialin for ¥3.683 billion (US$599 million) in cash. Luye plans to acquire a 10 percent stake in Jialin held by CITIC Private Equity and a 48 percent stake held Mylin Holdings, a Beijing-based private equity group.
CITIC is also a shareholder in Luye, along with CDH Investments, New Horizon Capital and GIC Private Ltd., Singapore's government-owned investment fund.
The announcement has helped push Luye's stock (HKSE:2186) price up 22 percent from HK7.28 (US$0.94) on Aug. 27 to HK$8.94 on Sept. 2. Investment bank Credit Suisse has kept Luye on an "outperform" rating and raised the target price of the company to HK$9.80. UBS, meanwhile, has issued a "buy" rating and raised the company's target price from HK$8.40 to HK$9.53.
"The acquisition should bring around 28 percent potential upside to our 2015E net profit forecast of ¥808 million (US$131 million), assuming smooth completion of the deal," said Credit Suisse analyst Iris Wang in a note.
Wang said she believes there are a number of synergies that the two companies can achieve, which should help boost Luye's bottom line.
Wang added that Jialin's amlodipine besylate and atorvastin calcium tablets, a combination used to treat hypertension and hyperlipidemia that the company plans to launch in the first half of next year, has the potential to become a blockbuster drug.
Jialin is a well-known maker of drugs for cardiovascular disease and cancer. The company's key product is A LE, atorvastatin calcium tablets, a leading lipid regulator in the China market. A LE accounted for about 17 percent of sales of atorvastatin calcium tablets to hospitals in China last year, down from almost 20 percent in 2010. Multinational firm Pfizer Inc. has gained some ground in that particular market.
Luye is the only manufacturer in China of acarbose, a diabetes drug, in capsule form.
The company distributes its acarbose capsules used to treat type 2 diabetes under the Beixi brand. The company also makes Xuezhikang, a blood lipid regulator.
Jialin's A LE is a natural complement to the portfolio and the company said the acquisition will help Luye take a greater share of the domestic market for products to treat cardiovascular diseases. Expansion in that area is "one of the key development strategies of the group," the company said in its filing with the HKEx.
"The company believes that the acquisition will supplement the group's already existing cardiovascular system product portfolio, help drive the group's market share, especially in the area of lipid regulators, and considerably strengthen the group's competitive advantage in the key strategic areas of the PRC cardiovascular system market," noted the company's announcement.
The deal could not only expand the company's product portfolio but also enhance its distribution network and R&D capability, which will "form the basis of the group's long-term competiveness and serve as a drivers for the group's future growth and development."
"Following completion, the group expects to re-align the sales model of Jialin with the sales and distribution channel of the group, which the group believes should result in improvements of the revenue contribution of Jialin to the group," Luye said. "The combination of the group and Jialin will produce considerable synergies."
When contacted by BioWorld Today, a Luye spokeswoman declined to comment beyond what is in the filing.
Drugs to treat cardiovascular diseases are an increasingly important sector in China. Cardiovascular products accounted for 14.4 percent of total revenues from the pharmaceutical market in 2013, making it the third largest overall therapeutic area for pharmaceutical products in China, according to the China Medical and Pharmaceutical Economic Information Network.
Jialin reported revenues of ¥1.12 billion in 2013, up 36.3 percent from ¥821.89 million in 2012. Jialin's net profit before taxes in 2013 was ¥297 million.
Luye delisted from the Singapore Stock Exchange in 2012 but relisted in Hong Kong in August, raising $764 million in an issue that became one of the five biggest IPOs in Hong Kong this year. (See BioWorld Today, July 2, 2014.)
The company said it intends to use $278 million, or about 60 percent of the net proceeds from the offering, to fund the acquisition.
Founded in 1994, the Yantai-based company has developed into a leading pharmaceutical company covering oncology, cardiovascular, orthopedic, gastroenterology and central nervous system diseases. It now has a presence in the U.S., Singapore and Hong Kong, as well as Shanghai, Beijing, Nanjing, Yantai and Luzhou in China, with more than 3,000 employees.