Feb 23, 2018 06:31 AM

China Health Care Sector’s Robust Growth to Continue Apace, Analyst Says

Chinese medical device makers’ interests in overseas acquisitions will continue in 2018. Photo: VCG
Chinese medical device makers’ interests in overseas acquisitions will continue in 2018. Photo: VCG

China’s health care sector is expected to continue its robust growth as the industry is benefiting from supportive policies and investors are drawn to surging biotech stocks listed in Hong Kong, said an analyst at ICBC International.

Chinese pharmaceutical companies would get a boost from the government regulator’s faster approvals of new drugs and medical devices, said Zhang Jialin, a senior health-care analyst with ICBC International Research Ltd. in Hong Kong.

Last October, China’s State Council announced proposals to expedite approvals for new drugs and for the first time permit the use of data from overseas clinical trials.

Zhang told Caixin that domestic drugmakers with a large pipeline of medications will be able to bring their new products to market more quickly.

Meanwhile, a wave of consolidation in China’s fragmented pharmaceutical industry would help those industry leaders to gain market shares, said Zhang.

China has been pushing the implementation of a “two invoices” distribution system, designed to streamline medicine distribution channels, lower drug costs and prevent corruption. Zhang said the new system has encouraged big distributors to increase their market shares through mergers and acquisitions.

China has also updated its list of medicines covered by basic medical insurance programs, a boost to those pharmaceutical companies with newly included products.

Zhang is especially bullish on the biotech sector as China is leading in the number of clinical tests of PD-1 drugs — shorthand for programmed cell death protein 1 — which destroy cancer cells using the patient’s own immune system, and CAR-T therapies, which extract a patient's immune system cells and modify them to attack cancers.

Among the dozen domestic biopharmaceutical companies developing PD-1 drugs, Innovent Biologics Inc. in Jiangsu province is the only Chinese maker of a PD-1 inhibitor that has completed clinical trials and has applied to launch its drug. The company is in talks with investors to raise $150 million ahead of a planned initial public offering on either the U.S. or Hong Kong stock exchange, people close to the company’s management told Caixin.

Hong Kong-listed Genscript Biotech Corp. announced on Dec. 11 that its subsidiary had received permission to conduct cancer immunotherapy trials. The company’s share price rose by over 20% that day and continued to rise for the next month by nearly 140%.

The Hong Kong stock exchange has been enthusiastically wooing biotech companies. The exchange announced in December that it intended to allow pre-revenue biotech companies to list on the bourse.

Chinese medical device makers are also stepping up their interests in overseas acquisitions, a trend Zhang expects to continue in 2018.

Shenzhen-listed medical test developer Sinocare Inc. has confirmed its interest in potentially acquiring Johnson & Johnson’s diabetes care unit. The deal could fetch up to $4 billion, Reuters reported last month, citing unnamed sources with direct knowledge of the discussions.

Last September, China’s Shandong Weigao Group Medical Polymer Co. Ltd., a maker of medical devices and orthopedic and blood purification products, agreed to acquire U.S.-based privately held Argon Medical Devices Holdings Inc. for $850 million.

A group of Chinese investors in December agreed to buy Italian medical device group Esaote for about 248 million euros ($292 million). Buyers include China's biggest listed diagnostic-imaging provider, Beijing Wandong Medical Technology Co., home-care medical-device maker Jiangsu Yuyue Science & Technology Development Co., and Yunfeng Capital, a private equity fund co-founded by Alibaba head Jack Ma.

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