China M&A 2019 review & 2020 outlook: Pharmaceutical SectorApril 2020

PwC

1. Foreword 03

2. Market overview 06

3. Strategic buyers 10

4. Financial buyers 13

5. Mainland China outbound deals 15

Content

2

Foreword

PwC

• The data and analysis here presented are for the China Pharmaceutical sector only

• The data source of this deck is consistent with that of PwC 2019 China’s Corporate M&A Review and 2020 Outlook, which is based on the information compiled by ThomsonReuters, ChinaVenture, AVCJ, Public news and PwC analysis, unless stated otherwise

• Thomson Reuters and ChinaVenture record announced deals. Some announced deals will not go on to complete

• The deal volume figures presented in this report refer to the number of deals announced, regardless of whether or not a value is disclosedfor the deal

• The deal value figures presented in this report refer only to the deals whereby a value has been disclosed (referred to in this presentation as“disclosed value”)

• “Domestic” means China including Hong Kong, Macau and Taiwan

• “Outbound” relates to mainland China company acquisitions abroad

• “Inbound” relates to overseas company acquisitions of Domestic companies

• “Private Equity deals” or “PE deals” refer to financial buyers deals with deal value over US$10mn and/or with undisclosed deal value, invested mainly by private equity GPs but also including direct investments by financial institutions and conglomerates which are of the nature of private equity type investment

Foreword – Explanation of data presented in this report (1/2)

4

PwC

Foreword – Explanation of data presented in this report (2/2)

• “VC deals” refer to financial buyer deals with deal value of less than US$10mn and/or with undisclosed deal, but invested by venture capital funds

• “Strategic buyer” refers to corporate buyers (as opposed to financial buyers) that acquire companies with the objective of integrating the acquisition in their existing business

• “Financial buyer” refers to investors that acquire companies with the objective of realizing a return on their investment by selling the business at a profit at a future date and mainly, but not entirely, comprise PE and VC funds

5

Market overview

PwC

Market overview

China pharmaceutical M&A kept

active in 2019 with deal volume

comparable to 2018 and deal value

increased by 12% to US$ 22.2bn,

the highest since 2016. The growth

was driven by a number of mega

deals conducted by foreign

investors and private equity funds.

Meanwhile, outbound deal fell off a

cliff by 84%.

7

Total deal volume and value of China Pharmaceutical sector, from 2016 to 2019

Volume Value Volume Value Volume Value Vol Value Vol Value

Strategic buyers (US$mil) (US$mil) (US$mil) (US$mil)

Domestic 1 7 2 1 1 ,41 1 1 58 6,481 1 67 9,033 21 7 9,61 1 30% 6%

Foreign 8 97 1 1 1 7 8 3 - 1 1 2 ,984 267 % n.a

Total Strategic buyers 180 11,508 169 6,659 170 9,033 228 12,594 34% 39%

Financial buyers

Priv ate Equity 53 5,37 3 39 4,001 86 5,963 88 8,681 2% 46%

VC 38 1 94 39 87 1 29 293 99 1 00 (23%) (66%)

Total Financial buyers 91 5,567 78 4,088 215 6,256 187 8,782 (13%) 40%

China mainland Outbound

SOE - - 2 57 6 3 1 93 - - (1 00%) (1 00%)

POE 25 2 ,668 24 3 ,87 7 1 5 1 ,047 5 1 64 (67 %) (84%)

Financial buy ers 5 564 7 1 ,909 31 3 ,222 1 5 536 (52%) (83%)

Total China mainland Outbound30 3,231 33 6,362 49 4,462 20 700 (59%) (84%)

HK Outbound 3 27 6 3 6 3 1 8 2 93 (33%) 423%

Total 304 20,582 283 17,115 437 19,769 437 22,169 0% 12%

2016 2017 2018 2019 2019 Vs 2018 % Diff

Source: ThomsonReuters, ChinaVenture and PwC analysis

12%

PwC

Market overview

Foreign strategic buyers made a

record high of US$3bn M&A in

2019, among which Amgen’s

US$2.78bn strategic investment in

BeiGene has marked the largest

deal of its kind. Moreover,

domestic strategic deal remained

active while outbound dropped to

the lowest since 2016.

8

11,411

6,481

9,033 9,611

97

178

-

2,984

6,131

5,997

9,478

9,318

2,943

4,459

1,258

257

-

5,000

10,000

15,000

20,000

25,000

2016 2017 2018 2019

Deal value by main category (2016 to 2019)

Domestic Strategic Buyer Foreign Strategic Buyer Financila Buyer Outbound

* Deal value of financial buyers includes financial buyer-led outbound delastotaling US $ 536 million (US $ 3.222 bil lion in 2018)

Source: ThomsonReuters, ChinaVenture and PwC analysis

US$ million

$3bn

PwC

Market overview

M&A activity stayed flat from 2018

and reported as high as 437 deals.

Deal volume of domestic strategic

buyers increased by 30% to 217,

largely offsetting the decrease in

venture capital deals and the

stagnation of outbound.

9

30%

172 158 167 217

8 11 3

11 96 85

246

202

28 29

21 7

0

50

100

150

200

250

300

350

400

450

500

2016 2017 2018 2019

Domestic Strategic Buyer Foreign Strategic Buyer Financial Buyer Outbound

Deal volume by main category (2016 to 2019)

* Deal volume of financial buyers include 15 (31 in 2018) outbound led by private equity funds

Source: ThomsonReuters, ChinaVenture and PwC analysis

Strategic buyers

PwC

Strategic buyers

Driven by continuous healthcare

reform, domestic companies have

been actively doing M&A to expand

product lines or advance business

transformation/consolidation. Hence

deal volume of domestic strategic

buyers increased by 30% from 167

in 2018 to 217 in 2019 (the increase

is driven by small transactions

below US$ 30m) while deal value

increased by only 6% due to smaller

deal size; on the other hand, foreign

strategic buyers carried out active

M&A in 2019, indicating increasing

confidence in China market.

11

Source: ThomsonReuters, ChinaVenture and PwC analysis

172 158 167

217

8 11 3

11

0

2,000

4,000

6,000

8,000

10,000

12,000

0

50

100

150

200

250

2016 2017 2018 2019

Deal volume - Domestic Deal volume - Inbound Deal value - Domestic Deal value - Inbound

VolumeUS$ million

Strategic buyer deal volume and value (2016 to 2019)

PwC

Strategic buyers

Benefited by the opening of STAR

market and new listing rules of

HKEX, deal volume of

biotechnology increased

significantly to 70 from 39 in 2018,

with deal value reaching US$ 3.8bn,

the highest since 2016. On the

other hand, stimulated by

nationwide expansion of

“4+7 ”procurement and NRDL

update, traditional pharmaceutical

sector (generics) has sped up

integration and therefore deal

volume in 2019 reached a record

high of 158.

12

Source: ThomsonReuters, ChinaVenture and PwC analysis

Strategic buyer deal volume and value by sector (2016 to 2019)

138

99

131

158

42

70

39

70

0

2,000

4,000

6,000

8,000

10,000

12,000

0

50

100

150

200

250

2016 2017 2018 2019

Deal volume - Pharmaceutical Deal volume - Biotechnology Deal value - Pharmaceutical Deal value - Biotechnology

VolumeUS$ million

Financial buyers

PwC

Financial buyers

With an increasing number of

biotech companies getting listed in

HKEX in 2019, transaction value of

PE investment climbed to a record

high of US$8.7bn (despite flat

volume from 2018) as PE backed

such IPOs as Hansoh, Pharmaron,

Henlius, Cstonepharma etc. as

cornerstone investors.

14

Source: ThomsonReuters, ChinaVenture and PwC analysis

53 39

86 88

38

39

129

99

-

2,000

4,000

6,000

8,000

10,000

-

20

40

60

80

100

120

140

160

180

200

220

240

2016 2017 2018 2019

US$ millionVolume

Financial buyer deal volume and value by type (2016 - 2019)

Deal volume - PE Deal volume - VC Deal value - PE Deal value - VC

Mainland China outbound deals

PwC

Mainland China outbound deals

China outbound fell to lowest level

since 2016 in both volume and

value terms, with various factors

combining to severely curtail large-

sized cross-border transactions, as

had been expected.

16

Source: ThomsonReuters, ChinaVenture and PwC analysis

- 2 3 -

25 24

15

5

5 7

31

15

-

1,000

2,000

3,000

4,000

5,000

-

10

20

30

40

50

60

2016 2017 2018 2019

US$ millionVolume

Mainland China outbound deals by investor type (2016 - 2019)

Deal volume - SOE Deal volume - POE Deal volume - Financial buyer

Deal value - SOE Deal value - POE Deal value - Financial buyer

PwC

Number of outbound deals dropped from 49 to 20 in 2019, with 16 of which taking place in North America

17

Outbound M&A deal volume by region of destination (2019 vs. 2018)

Source: ThomsonReuters, ChinaVenture and PwC analysis

South America

00

North America

1634

Africa

00

1

Europe

9

3

Asia

3

Oceanic

03

20182019

PwC 18

Top 10 deals in 2019

Top 10 deals of 2019, valued at US$10.1bn and accounting for 52% of total value (US$6.3bn and 32% for 2018), drove the

increase of overall M&A

Date Acquirer Acquirer category Target Target industry Deal typeDeal value

(US$ mil)

31/10/2019 Amgen Inc MNC BeiGene Ltd Biopharmaceutical Inbound 2,779

25/02/2019 Changchun High & New Tech Inds Listing companyGeneSciencePharmaceuticals Co. Ltd

Growth hormone Domestic 1,376

11/04/2019 Zhejiang Doyin Pump Co Listing company Shandong Luoxin Pharma API/chemical drugs Domestic 1,322

14/06/2019GIC、Boyu Capital、Ally Bridge Group、OrbiMed Capital、YongjinCapital、Hillhouse Capital、Cormorant、Vivo、Shanghai Pharma (HK)

PE and listing company

Jiangsu Hansoh PharmaGeneric and innovative drugs

Domestic 1,006

10/05/2019 CPE China Fund、CICC Capital、Qianshan Capital、Barings PE JD HealthE-commerce and online medical

Domestic 1,000

28/11/2019Oaktree Capital、Lake Bleu Capital、OrbiMed Capital、Chengtong Fund、Athos Capital

PEPharmaron Beijing Co., Ltd

CRO Domestic 591

23/10/2019 China Medicine、China General Technology Listing companyChongqing Pharmaceutical

Distribution Domestic 579

04/09/2019 PAG Highlander PEZhejiang Hisun BoruiBiologics Pharma

Biosimilar Domestic 536

20/03/2019 Morgan Stanley Investment bank Wuxi Biologicsmonoclonal antibodies biopharm

Domestic 488

18/04/2019 Wuxi AppTec (Shanghai) Co., LtdSubsidiary of listing company

Shanghai SyntheallPharmaceutical

CMO Domestic 464

Source: ThomsonReuters, ChinaVenture and PwC analysis

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