This year, traditional Chinese medicine companies have been intensively involved in mergers and acquisitions. Since August, listed Chinese medicine companies such as Lingrui Pharmaceutical, Kangyuan Pharmaceutical, Pianzaihuang, and CR Sanjiu have announced their merger and acquisition plans. At the same time, the recent establishment of investment funds by Yunnan Baiyao and Pianzaihuang is also considered a prelude to outward mergers and acquisitions.

Li Zhong, a senior marketing expert in the pharmaceutical industry, stated in an interview with 21st Century Business Herald that the integration of the entire traditional Chinese medicine industry is inevitable and belongs to the national strategic direction. Large traditional Chinese medicine enterprises may increase their integration efforts, and the industry will present a stronger and stronger force. Traditional Chinese medicine enterprises with well-known brands, good products, good teams, and good research and development will develop rapidly. At the same time, some small enterprises will naturally be integrated, and large state-owned enterprises such as China Resources and Sinopharm will increase their market layout strategies.

In the trend of M&A and integration in the Chinese medicine industry, in addition to M&A and integration in the field of traditional Chinese patent medicines and simple preparations, cross-border and diversified layout in the field of biochemical innovative drugs has also become a feature worthy of attention. Since November, Kangyuan Pharmaceutical and Lingrui Pharmaceutical have successively announced the acquisition of biological and chemical pharmaceutical companies, entering the field of innovative drugs. In July, the announcement of progress in Xiangxue Pharmaceutical's TCR-T cell therapy products sparked a frenzy in the capital market.

In the diversified layout of traditional Chinese medicine enterprises, Zheng Pei, the general manager of Henan Dynamic Sales Enterprise Management Consulting Co., Ltd., pointed out in an interview with 21st Century Business Herald that the first thing to consider is research and development strength, whether there is a professional research and development team or long-term deep cooperation with mature research and development companies. Its own research and development capabilities include strategic layout, strategic thinking, judgment, and other aspects of research and development. At the same time, in terms of collaborative development, if OTC or clinical sales channels are strong enough, it is possible to develop some same disease, same department, and same pipeline varieties from terminal channels to supplement and expand the R&D pipeline.

The trend of industry mergers and acquisitions integration continues

Recently, there have been frequent reports of mergers and acquisitions by A-share Chinese medicine listed companies. On December 4th, Lingrui Pharmaceutical, a leader in traditional Chinese medicine patches, disclosed its intention to use its own funds to acquire 100% equity of Yingu Pharmaceutical Co., Ltd. According to preliminary evaluations, its comprehensive valuation is tentatively set at no more than 782 million yuan. It is reported that Yingu Pharmaceutical is a chemical pharmaceutical enterprise, and its main products include the first highly selective anticholinergic receptor antagonist class 1 new drug phenylcycloquine ammonium bromide nasal spray in China, and the first domestic generic drug salmon calcitonin injection.

On November 7th, a month ago, Kangyuan Pharmaceutical announced plans to acquire 100% equity of Zhongxin Pharmaceutical with its own funds of 270 million yuan. After the transaction is completed, Kangyuan Group, the controlling shareholder of Kangyuan Pharmaceutical, will hold 70% of the equity of Zhongxin Pharmaceutical. At present, Zhongxin Pharmaceutical has four innovative drugs entering clinical research, including recombinant human nerve growth factor injection/NGF eye drops, and dual target/triple target long-acting hypoglycemic and weight reducing fusion proteins, two of which are popular GLP-1 drug pipelines.

In August of this year, Pian Zai Huang also spent 254 million yuan to acquire Zhangzhou Mingyuan Flavor Co., Ltd., hoping to acquire the core asset of Mingyuan Flavor, namely 30% equity of Zhangzhou Shuixian Pharmaceutical Co., Ltd., which is the first wind oil essence factory in China, through the acquisition. However, this transaction was questioned due to reasons such as "acquiring a zero revenue enterprise" and "dividends requiring 85 years to recoup costs", and was ultimately suspended after the Shanghai Stock Exchange issued a regulatory letter.

In August, China Resources' acquisition of Tianshili for 396.2 billion yuan also attracted widespread attention in the industry. On August 4th, China Resources Sanjiu announced the signing of a "Share Transfer Agreement" with Tasly Group and its concerted action parties to acquire 418 million shares of Tasly at a price of RMB 14.85 per share, accounting for 28% of Tasly's total share capital, for a total price of RMB 6.212 billion. After the equity change is completed, China Resources Sanjiu will become the controlling shareholder of Tianshi Li, and China Resources will become the actual controller of Tianshi Li.

Two months ago, China Resources Sanjiu had already integrated its subsidiaries through mergers and acquisitions. On June 8th, Kunming Pharmaceutical Group announced that it will acquire a 51% stake in Kunming China Resources Torch from China Resources Sanjiu through a transaction worth 1.791 billion yuan. This move aims to integrate Kunyao Group's Sanqi business and solve the industry competition issue with China Resources Sanjiu regarding Xuesaitong soft capsule products.

The reasons and objectives for the above-mentioned acquisition have also been explained in the company announcement, mainly including integrating the resources of both parties, forming a synergistic effect of business synergy and resource complementarity, and achieving the strengthening and extension of the traditional Chinese medicine industry chain. And expand business areas, enrich the company's biopharmaceutical research and development pipeline, improve product matrix, enhance core competitiveness, etc.

In addition to the disclosed transaction plan, the recent establishment of investment funds by leading traditional Chinese medicine enterprises is also considered a precursor to mergers and acquisitions. Yunnan Baiyao announced on November 30th that it plans to jointly invest with Bank of China International Investment to establish the Yunnan Provincial Traditional Chinese Medicine Big Health Innovation Fund. The target subscribed capital of the partnership enterprise is RMB 7 billion, of which Yunnan Baiyao, as a limited partner, intends to subscribe RMB 5 billion with its own funds.

At the end of November, Pien Tze Huang also announced that its wholly-owned subsidiary Pien Tze Huang Investment and other parties jointly initiated the establishment of Fujian Pien Tze Huang Yingke Health Industry Investment Partnership Enterprise. Pien Tze Huang Investment subscribed 290 million yuan with its own funds, accounting for 29.00% of the fund. In September of this year, Pien Tze Huang announced that it would jointly invest with multiple parties to establish the Zhangzhou Yuanshan Health Industry Investment Fund Partnership Enterprise (Limited Partnership).

Industry insiders have pointed out to 21st Century Business Herald reporters that essentially, listed companies hope to become tentacles of outward development through external investment funds. If the invested companies develop well, they may eventually become targets of mergers and acquisitions by the listed companies.

When it comes to the trend of mergers and acquisitions in traditional Chinese medicine enterprises, Zheng Pei, the general manager of Henan Dynamic Sales Enterprise Management Consulting Co., Ltd., pointed out in an interview with 21st Century Business Herald reporters that firstly, the trend of mergers and acquisitions is to extend to the upstream and downstream industrial chains. In recent years, the government has also encouraged large enterprises to conduct mergers and acquisitions from the perspective of the development of the industrial chain upstream and downstream; Secondly, some leading traditional Chinese medicine enterprises have strong sales channel networks and hope to expand their product system and quantity through mergers and acquisitions of generic and chemical drug companies; In addition, after the scale of traditional Chinese medicine enterprises expands, they hope to invest more in research and development. Compared to important fields, the research and development scope of chemical and biological drugs is wider and there are more opportunities. In the field of chemical and biological drug research and development, self built research and development pipelines are not as fast as mergers and acquisitions.

In recent years, the trend of "state-owned assets entering the Chinese medicine industry" has become noteworthy in mergers and acquisitions, and the merger and acquisition actions of CR Sanjiu mentioned above are a manifestation of "state-owned assets entering the market". Li Zhong believes that the future of the traditional Chinese medicine industry is promising, but some enterprises may encounter some problems in their development and need to find relatively stable ways, while state-owned enterprises will be more stable. When facing the current stage, private enterprises of traditional Chinese medicine can obtain stronger national backing and strong economic strength through state-owned enterprise acquisitions. Whether it is financial resources, national policy resources, or local government resources, state-owned assets will bring great support to traditional Chinese medicine enterprises, and they will no longer fight alone

The wave of "cross-border layout"

In the recent wave of mergers and acquisitions in the industry, acquisition actions are not limited to internal mergers and acquisitions in the traditional Chinese medicine industry. In addition to "state-owned assets entering the market", "cross-border layout" is also a noteworthy feature in mergers and acquisitions in the traditional Chinese medicine industry. In the above-mentioned acquisition transactions, some traditional Chinese medicine companies have chosen to acquire chemical and biological medicine enterprises to seek diversified layouts, which is also worth paying attention to. Lingrui Pharmaceutical chose to acquire Yinggu Pharmaceutical, a chemical pharmaceutical company. Kangyuan Pharmaceutical invested 270 million yuan to acquire Zhongxin Pharmaceutical, which is also a biopharmaceutical new drug research and development enterprise, and entered the GLP-1 track through this acquisition.

Xiangxue Pharmaceutical has made significant progress in recent times among traditional Chinese medicine enterprises engaged in cross-border layout of biochemical innovative drugs. On July 30th, TAEST16001 injection, a TCR-T cell therapy product declared by Xiangxue Pharmaceutical's subsidiary, was included in the list of breakthrough treatment varieties by the Drug Evaluation Center of the National Medical Products Administration. The disclosure of this news caused Xiangxue Pharmaceutical's stock price, which had been consistently low for many years, to be violently boosted, rising more than 210% for nine consecutive trading days. Xiangxue has become the earliest and fastest enterprise to enter the TCR-T track in China.

In recent years, there have been many established traditional Chinese medicine companies that have chosen to lay out their presence in the field of chemical and biological drugs. Top ranking Chinese medicine companies such as Pianzaihuang, Yunnan Baiyao, Huarun Sanjiu, Yiling Pharmaceutical, Jichuan Pharmaceutical, and Tianshili have all laid out their presence in the field of biochemical innovative drugs.

Li Zhong pointed out that at present, many western medicine enterprises are acquiring traditional Chinese patent medicines and simple preparations enterprises, many traditional Chinese patent medicines and simple preparations enterprises are carrying out internal integration, and some traditional Chinese patent medicines and simple preparations enterprises are acquiring western medicine enterprises. "The profits of western medicine are getting thinner and thinner, so western medicine enterprises have entered the traditional Chinese patent medicines and simple preparations market for operation. At the same time, Chinese medicine enterprises can better carry out research and development in some brand markets and enter the innovative medicine market after they have a certain financial strength. The two markets are interlinked, both targeted at the original patients or the original doctors, and also faced with the need for different personnel qualities and operation modes."

"At present, Chinese medicine enterprises are also facing a difficult process. From the annual report of listed Chinese medicine enterprises, it can be seen that many Chinese medicine enterprises have seen a decline in profits due to the rising cost of Chinese medicine raw materials, centralized procurement and other factors. Therefore, Chinese medicine enterprises should be the first in their own categories. At the same time, they can also carry out diversified layout, but there are not many Chinese medicine enterprises that focus on research and development at present. Chinese medicine enterprises also need to start to pay attention to research and development, medical insurance and traditional Chinese patent medicines and simple preparations centralized procurement." Li Zhong said through analysis.

Regarding the cross-border layout of biochemical innovative drugs by traditional Chinese medicine enterprises, Zheng Pei believes that without full confidence, it is not recommended for traditional Chinese medicine enterprises to engage in research and development of chemical and biological drugs. There are huge differences in research and development direction, process, and project approval, and cross-border cooperation will face numerous challenges.

"If we really want to carry out cross-border layout, we need to fully demonstrate, fully layout, find suitable products and projects, and select fields with lower difficulty to promote, because research and development is very costly and risky. For some ten billion level large-scale pharmaceutical enterprises, which have many subsidiaries, large sales teams, and channel networks, we can consider the comprehensive layout of traditional Chinese patent medicines and simple preparations, biological drugs, and chemical drugs, but we do not recommend cross-border layout of small and medium-sized enterprises, but we should focus on the technical industry." Zheng Pei stressed.

Professor Deng Yong, Director of the Health Rule of Law Research and Innovation Transformation Center at Beijing University of Traditional Chinese Medicine, previously pointed out in an interview with 21st Century Business Herald that traditional Chinese medicine enterprises may face challenges in terms of technological research and development bottlenecks, financial pressure, regulations, and approvals in the layout of biochemical innovative drugs. In the cross-border layout, the collaborative development of biochemical innovative medicine business and existing traditional Chinese patent medicines and simple preparations business can be achieved through channel sharing, brand collaboration and R&D collaboration. Specifically, the existing sales channels and market networks of traditional Chinese medicine enterprises can be used to promote innovative chemical drugs. In addition, in the process of drug research and development, explore the combination of traditional Chinese patent medicines and simple preparations and innovative chemical drugs.