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2020 China Life Sciences and Health Care M&A Trends report

Industry reform initiatives and technology innovation to lead capital investment trends in China's LSHC sector

Published: 28 April 2020

Deloitte published the 2020 China Life Sciences and Health Care M&A Trends report (hereinafter referred to as "report") today, in an attempt to predict investment prospect of the Life Sciences and Health Care ("LSHC") sector and enlighten industry stakeholders by looking back to M&A trends and analysing the current situation. The report, based on deal data, delves into uncertainties and challenges in M&A activities, especially M&A trends in subsectors such as drugs, biotech, medical service institutions and medical device manufacturers. Moreover, it also looks ahead into 2020 by capturing the current trends, observing live business cases and identifying hot areas.

"Aging population, overall income growth and deeper involvement of social capital have resulted in significant transformation of China's LSHC sector over the past decade. China had already become the second-largest pharmaceutical market and the largest healthcare market in the world, maintaining high growth momentum. Although COVID-19 has brought challenges to Chinese and global economy since early 2020, it also sped up digital transformation of the healthcare industry, revealed future potential investment hotspots and might prompt a new capital investment boom in the health and tech sectors this year," said Deloitte China LSHC Industry Leader Jens Ewert.

In face of significant headwinds, including slower GDP growth, tightening credit policies and US-China trade frictions, domestic and overseas traders are taking on a prudent posture when it comes to investment. The deal count and value of M&As in the LSHC sector have declined about 24% compared to the previous year, driving the deal value to a low point since 2014. Domestic deal count dropped from 328 to 268, with a total deal value decreasing from USD29.2 billion to USD20.8 billion. Correspondingly, cross border deal count dropped from 103 to 63, with deal value decreasing slightly from USD7.2 billion to USD6.9 billion, among them, middle-sized deals (USD 100M- 500M) shrank the most.

With preferable policy environment and the influx of huge capitals, the biopharma subsector maintains dynamic M&A activities, becoming a hot investment area in 2019. M&A activities in the biotech sector are still active. The average single deal size increased from USD72 million to USD118 million from 2018 to 2019. Mainly driven by block deals, the medical service subsector also emerges similar trends. Although negatively affected by less cross-border M&As, industry integration in Chinese medical equipment sector remains active.

With the outbreak of the Covid-19, the total deals recorded in China including Hong Kong from 1 January to 10 February, 2020 were only 84, with total deal value worth USD8.4 billion, down by 54% and 76%, respectively, compared to the same period last year. The crisis also has prompted China's application of new technologies in certain health care offerings and public health management areas. For example, online medical consultation, 5G, AI and big data have become the technology focus in combating the virus propagation. Meanwhile, related financing activities are still alive. From January to February 2020, PE/VC investment in areas of digital health amounted to USD217 million, at a total count of 11 deals, taking up around one-fourth of the total financing activities in terms of both value and volume for the entire LSHC industry in China.

As for China's pharmaceutical market, the whole value chain is at an inflection point of shifting to more innovative products and more efficient solutions. Industry integration will further expand among wholesalers, retailers, medical equipment manufacturers, etc. We also expect to see growing interests in Venture-IP-CRO (VIC model) in biopharma, primary care centers and home-grown high-class device areas.

Deloitte China Life Sciences and Health Care M&A Services Partner Bob Chen explains, "In the long run, driven by the digital transformation enabled by interoperable data and open secure platforms, technology innovation might further blur the boundaries of traditional health care. Investments in life sciences and health care will continue to be driven by innovation, with broader and deeper application of technology in the areas of healthcare, drug discovery, and medical device manufacturing. Although the negative impact on macro economy would emerge in the coming months, we believe, under such circumstances, companies trying out bold innovations while leveraging preferable policies would be more likely to attract new investments, facilitate more extensive and deeper scientific and technological applications, thereby building a more solid future for the LSHC industry."

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