Recently, Tiantan Biological announced that its holding subsidiary Chengdu Rongsheng Pharmaceutical Co., Ltd. intends to acquire 100% equity of Wuhan Zhongyuan Ruide Biological Products Co., Ltd., a wholly-owned subsidiary of CSL BEHRING ASIA PACIFIC LIMITED (Jetbehring (Asia Pacific) Co., Ltd.) for a total amount of US$185 million (nearly RMB 1.33 billion).

Among them, the equity acquisition price is US$138 million, and the remaining amount is provided by Chengdu Rongsheng to Zhongyuan Ruide to repay the shareholder loan of CSL Asia Pacific to Zhongyuan Ruide (hereinafter referred to as "CSL", "Zhongyuan Ruide" and "this acquisition").

After the completion of this transaction, Zhongyuan Ruide will become a holding subsidiary of Tiantan Biological, and its financial statements will be consolidated.

For Tiantan Biological, this is a deal that adds icing on the cake. Blood products are a rigid demand track with extremely high barriers, and "whoever gets the plasma station will win the world."
This acquisition will enable Tiantan Bio, which has the largest number of plasma stations in China, to acquire five wholly-owned plasma stations in Hubei from Zhongyuan Ruide, further improving its position in the industry.
Tiantan Bio is a third-level subsidiary of China Pharmaceutical Group, and its controlling shareholder is China Biotechnology Co., Ltd. After two major asset reorganizations in 2010 and 2017, Tiantan Bio became the only professional blood product company under China Biotechnology. It has six blood product manufacturers under its jurisdiction, including Chengdu Rongsheng, Lanzhou Blood Products, Shanghai Blood Products, Wuhan Blood Products, Guizhou Blood Products, and Xi'an Blood Products.
However, for CSL, this deal does not seem to be very cost-effective. Judging from the amount alone, from 2017 to 2018, CSL made two moves and spent a total of more than 450 million US dollars to buy 100% of Zhongyuan Ruide's equity. At that time, Zhongyuan Ruide had only four plasma stations, and now it has increased to five plasma stations, but the selling price was only 185 million US dollars. Excluding the operating investment during the period, it still lost nearly 270 million US dollars, which is equivalent to a 41% discount.
Zooming in, this is the third foreign-funded sale of similar assets in less than a year: at the end of last year, Haier Group acquired Shanghai Laishi shares held by Gilford; in July this year, Hong Kong Green Cross became a wholly-owned subsidiary of Boya Bio.

In addition to this acquisition, it is not difficult to see that in the field of blood products, foreign capital seems to be collectively "leaving", and state-owned assets are playing an increasingly important role.

Blood product collection, preparation, and circulation are all related to life safety and are highly regulated. It is a business closely related to "licenses".

Since May 2001, the state has implemented total quantity control and no longer approved new production enterprises. At present, there are less than 30 blood product production enterprises operating normally in China, and a few enterprises have multiple production licenses. Participants are trying to stimulate the vitality of the industry with mergers, acquisitions, and reorganizations in a limited stock.

CSL originated in Australia and has a history of more than 100 years. It is one of the world's largest blood product operators and entered the Chinese market in 1986 through the import distribution model. If you want to further introduce the manufacturing capacity of the entire line of blood products into China, acquiring local companies is a key access method.

In 2017, CSL completed the joint venture delivery with Renmin Pharmaceuticals, acquired 80% of Zhongyuan Ruide's equity for US$352 million, and began to take over the company's operations.

In 2018, Renmin Pharmaceuticals transferred the remaining 20% equity of Zhongyuan Ruide to CSL, completely cutting off Zhongyuan Ruide's equity, and the selling price was US$102 million.
In other words, CSL spent a total of US$454 million that year to get 100% of Zhongyuan Ruide's equity. However, seven years later, the same asset was resold to Tiantan Biological for only US$185 million, and the paper loss was as high as nearly US$300 million. The rest of the operating input costs are unknown, and CSL's losses are definitely more than US$300 million.

Data shows that in 2016, Zhongyuan Ruide's revenue was 203 million yuan, a year-on-year increase of 10.73%; net profit was 66.07 million yuan, a year-on-year increase of 58%.
In 2017, Renmin Pharmaceutical explained the reason for the sale in the transaction announcement: Zhongyuan Ruide is relatively small in scale, and it is difficult to form a leading or leading market position by relying solely on endogenous growth.
According to the announcement released by Tiantan Bio, in 2023, Zhongyuan Ruide's revenue will be 150 million yuan - limited by low gross profit margin (caused by product yield and product price) and high management expenses, it is still in a loss state.

Compared with 2016, Zhongyuan Ruide's revenue in 2023 will decrease by nearly 50 million yuan. In 7 years, not only has there been no growth, but it is also regressing.
03
Foreign capital frequently invests in blood product assets in China
In recent years, the merger and acquisition integration of the domestic blood product industry has accelerated, and the pace of withdrawal of foreign capital has obviously accelerated.

In December 2023, Haier Group spent 12.5 billion yuan to acquire 20% of Shanghai Laishi held by Gilford and obtained a total of 26.58% of the voting rights. In June this year, the transaction was completed. After the board of directors of Shanghai RAAS was reorganized in accordance with the transaction agreement, Haier Group became the actual controller of Shanghai RAAS.

Headquartered in Barcelona, Spain, Gilford is a global leading blood products company that entered the Chinese market in the 1980s. In 2019, Gilford used its testing business subsidiary GDS to reorganize assets with Shanghai RAAS, becoming the second largest shareholder of Shanghai RAAS, with a transaction value of approximately RMB 13.246 billion.

In addition to the Tiantan Bio acquisition incident, in less than a year, the three major foreign blood products companies in China collectively sold Chinese assets, which may mean that foreign-funded blood products entering China will return to the form of distribution.
Of course, this does not mean the full withdrawal of foreign blood products companies from the Chinese market.

In June this year, Chen Haochang, vice president and general manager of commercial operations of CSL Greater China, said that CSL is transforming from a simple "blood products company" to a biotechnology company, focusing on immunodeficiency, coagulation disorders, cardiovascular and metabolic diseases, respiratory diseases and transplant rejection. In the future, it will continue to accelerate the introduction of global innovative products, especially rare disease drugs, and strive to become a leader in the field of rare diseases.

In November 2021, China Resources Pharmaceutical spent 4.8 billion yuan to acquire the controlling rights of Boya Bio;

In March 2023, Gongqingcheng Shengbang Yinghao Investment acquired the controlling rights of Pai Lin Bio for 3.844 billion yuan by acquiring shares and accepting entrusted voting rights. The actual controller of Pai Lin Bio was also changed to Shaanxi State-owned Assets Supervision and Administration Commission;

In June of the same year, the controlling shareholder of Weiguang Bio was changed to China Bio......

After a reshuffle, according to a report by Huaxin Securities, there are only 28 companies in the domestic blood products industry. In 2023, Tiantan Bio, Shanghai Laishi, Hualan Bio, Taibang Bio, and Pai Lin Bio are ranked in the 1,000-ton plasma collection echelon, which is the first camp in the industry.

The siphon effect of resource-based industries is significant. The first-tier companies have significant competitive advantages, and the resource integration brought by mergers and acquisitions is deepening the moat.

Taking this acquisition as an example, Tiantan Bio is one of the earliest companies in China to form industrialized production of blood products, which can be traced back to 1966. The actual controller is Sinopharm Group. The number and scale of plasma collection stations under its umbrella are leading in China, reaching 102, distributed in 16 provinces/autonomous regions across the country. In the first half of this year, 1,294 tons of plasma were collected, accounting for about 20% of the total plasma collection in the domestic industry.

"Plasma stations" are a must-have for blood product track strategists. After the acquisition of Zhongyuan Ruide, Tiantan Bio will acquire another 5 plasma stations in Hubei Province, increasing the plasma collection volume by more than 100 tons/year, further consolidating its leading position.

Some industry insiders believe that blood products are strategic resources, and state-owned assets will increasingly play a major role. Some people also compare it to energy industries such as telecommunications and petroleum - in the future, it will develop into a competitive landscape for leading enterprises.

Let's look at the policy level. On June 11, the National Medical Products Administration issued the "Three-Year Action Plan for Smart Supervision of Blood Product Production (2024-2026)", with the goal of realizing the information management of the entire process of blood product production enterprises from raw plasma storage to production and inspection through three years of efforts, so as to promote the transformation and upgrading of the industry and effectively ensure the safety, effectiveness and quality control of blood products.

The horn of industry integration has sounded again. This acquisition event is definitely not the end of the domestic blood product merger and acquisition wave.

Source: https://mp.weixin.qq.com/