China National Pharmaceutical Health Industry Co., Ltd. Acquires Remaining 40% Stake in Liaoning Pharmaceutical for RMB 68.44 Million

On November 28, 2024, according to the announcement by China Meheco Group Co., Ltd. (hereinafter referred to as “China Meheco”), the Company intends to enter into an Equity Transfer Agreement with natural person Li Qiang and General Technology Liaoning Pharmaceutical Co., Ltd. (hereinafter referred to as “Liaoning Company”). The Company will invest RMB 68.437176 million from its own funds to acquire a 40% equity interest in Liaoning Company held by Li Qiang.

 

In April 2018, China Meheco signed an Equity Transfer Agreement with Li Qiang, acquiring a 60% equity interest in Liaoning Company (formerly known as “Shenyang Zhuying Pharmaceutical Co., Ltd.”) held by Li Qiang for a cash consideration of RMB 288 million. Upon completion of the aforementioned acquisition, China Meheco became the controlling shareholder of Liaoning Company, while Li Qiang retained a 40% equity interest therein. The company completed the industrial and commercial registration procedures for the transfer of the 60% equity interest in Liaoning Company at the end of April 2018 and included it within the scope of its consolidated financial statements. Pursuant to the terms of the prior acquisition, Li Qiang provided performance commitments for Liaoning Company covering the period from April 1, 2018, to March 31, 2021. Subsequent special audit results confirmed that Liaoning Company failed to meet certain portions of such performance commitments.

 

In 2024, driven primarily by industry policies and the prolonged payment cycles of medical institutions in Northeast China, Liaoning Company experienced a decline in revenue and profit, resulting in a temporary loss. To improve operational performance and sustainable development capabilities, the company subsequently implemented measures such as intensifying accounts receivable collection to accelerate cash inflows and optimizing its business structure.

 

According to the announcement, the purpose of this acquisition is for China Meheco to further optimize its internal management structure, comprehensively enhance its competitiveness in the Northeast region, and strengthen its strategic synergy capabilities. It is reported that upon completion of this acquisition, the Liaoning subsidiary will become a wholly-owned subsidiary of China Meheco. This will facilitate the formation of regional synergies across Liaoning, Jilin, and Heilongjiang provinces, integrate advantageous industrial resources such as pharmaceuticals and medical devices within the region, bolster the company’s regional competitive edge, reduce management costs, and improve decision-making efficiency.

Supporting Supply Chain Gains Momentum

Liaoning Company was established in April 2001. Its core business focuses on pharmaceutical distribution and direct sales, while also engaging in innovative ventures such as e-commerce. The company operates a warehousing and logistics facility spanning approximately 15,000 square meters and maintains a fleet of 19 delivery vehicles. It handles over 2,000 product varieties comprising more than 5,000 specifications. The company collaborates with nearly 2,000 upstream suppliers and serves over 7,000 downstream clients, including more than 3,000 medical institutions, over 700 commercial enterprises, and upwards of 3,000 OTC pharmacies.

 

Interestingly, Liaoning Company has witnessed the development of the healthcare industry in Northeast China over the past six years, with its pharmaceutical services and pharmaceutical commerce businesses fluctuating accordingly.

 

According to observations by VCBeat, eight medical innovation enterprises in the three northeastern provinces of China successfully went public between 2021 and 2023, breaking the zero-IPO streak recorded from 2018 to 2020 and delivering the most impressive performance since the year 2000. In the primary market, medical innovation companies in Northeast China have begun to emerge, with 17 firms securing financing over the past three years. Their investors include prominent institutions and corporations such as OrbiMed, Neusoft Capital, Hillhouse Ventures, and Hengrui Medicine, gradually presenting a more open and inclusive image to the industry.

 

Furthermore, the principles of specialization and clustering have been evident in industrial development. Taking the biopharmaceutical sector as an example, well-operated pharmaceutical industrial parks have emerged along the corridor from Harbin in the north to Dalian in the south. Meanwhile, Liaoning Province is home to prestigious institutions such as China Medical University, Shenyang Pharmaceutical University, Dalian University of Technology, Liaoning University of Traditional Chinese Medicine, Dalian Medical University, and Jinzhou Medical University. This concentration of academic institutions provides a steady stream of talent and facilitates the translation of research projects into industry applications.

 

Currently, after decades of accumulation, Northeast China has established a comprehensive layout for its biopharmaceutical industry, with a complete industrial chain. Taking Harbin New Area as an example, the region boasts multiple mature industrial clusters spanning chemical drugs, biological products, traditional Chinese medicine (TCM), biotechnology pharmaceuticals, and foods for special medical purposes (FSMP), thereby forming a robust supporting ecosystem for biopharmaceutical research and industrialization.

 

It is somewhat regrettable that, as a link in the supporting industry chain, Liaoning Company failed to timely capitalize on the financial windfall during this wave due to factors such as industry policies and payment collection issues. However, its existing hardware infrastructure and customer systems, after integration, can serve as a boost to the business expansion of China Meheco.

Continuous M&A Integration to Leverage Regional Advantages

China Meheco was established in 1984 under the name “China National Pharmaceutical & Health Care Products Import & Export Corporation.” It centrally managed the foreign economic and trade sector for pharmaceuticals and health care products across mainland China, successively establishing more than 40 branch companies in various provinces and municipalities, and setting up over 10 overseas enterprises in countries such as the United States and Japan. In 1999, it became a subsidiary of China General Technology Group (and has since become the Group’s sole platform for the production and operation of pharmaceuticals and medical devices).

 

In 2004, China National Pharmaceutical & Health Care Import & Export Corporation was renamed China National Pharmaceutical & Health Care Co., Ltd. Subsequently, the company acquired equity stakes in Guangzhou Daguang Pharmaceutical Co., Ltd., Xinjiang Tianshan Pharmaceutical Industry Co., Ltd., and Meikang Jiuzhou Pharmaceutical Co., Ltd. In 2013, it successively acquired equity stakes in Tianfang Pharmaceutical and Keyi Pharmaceutical, and assumed overall trusteeship of General Technology Group Pharmaceutical Holdings Co., Ltd. In 2014, the company was officially renamed China Meheco Group Co., Ltd.

 

In recent years, China Meheco has initially established an integrated industrial pattern combining trade, industry, technology, and services, driven by pharmaceutical and medical device commerce and supported by pharmaceutical manufacturing. Its business scope covers the entire industry chain, including cultivation and processing, research and development, production, sales, logistics, import and export trade, academic promotion, and technical services.

 

Among them, the pharmaceutical industrial segment of China Meheco includes nine subsidiaries: Tianfang Pharmaceutical, Sanyang Pharmaceutical, Kangli Pharmaceutical, Keyi Pharmaceutical, Great Wall Pharmaceutical, Tianfang Traditional Chinese Medicine, Tianshan Pharmaceutical, Wansheng Decoction Pieces, and Liyi Technology. Currently, it operates more than 60 production lines for active pharmaceutical ingredients (APIs) and finished dosage forms, holding over 700 drug approval numbers. Its product portfolio covers chemical APIs, chemical pharmaceutical preparations, traditional Chinese medicine (TCM) decoction pieces, and proprietary Chinese medicines. The products span multiple therapeutic areas, including anti-infectives, cardiovascular and cerebrovascular diseases, digestive system disorders, urinary system disorders, endocrine system disorders, neurological disorders, gynecology, and pediatrics.

 

It is worth noting that on December 14, 2022, China Meheco issued an announcement stating that the company had entered into an agreement with Pfizer to handle the importation and distribution of the oral small-molecule COVID-19 therapeutic nirmatrelvir/ritonavir (brand name: Paxlovid) in the mainland China market, with the agreement term expiring on November 30, 2023.

 

2024 was a year of dramatic ups and downs for China Meheco. At the beginning of the year, its wholly-owned subsidiary, Hainan General Sanyo Pharmaceutical Co., Ltd., received three approvals from the National Medical Products Administration (NMPA) confirming that its Cefazolin Sodium for Injection and Argatroban Injection (a penicillin-class antibiotic*) had passed the Generic Drug Consistency Evaluation. Additionally, Peramivir Injection was approved.*Note: The original Chinese text contains a factual contradiction, as Argatroban is a direct thrombin inhibitor, not a penicillin-class antibiotic. However, per the requirement for accuracy in translation of the provided source text, the literal meaning has been preserved while maintaining grammatical flow. If strict medical accuracy is required over literal translation of the error, "penicillin-class antibiotic" should be removed or corrected based on the actual drug classification intended by the author.* **Revised for professional medical accuracy assuming the source text had a typo grouping two different drugs:**2024 was a year of dramatic ups and downs for China Meheco. At the beginning of the year, its wholly-owned subsidiary, Hainan General Sanyo Pharmaceutical Co., Ltd., received three approvals from the National Medical Products Administration (NMPA) confirming that its Cefazolin Sodium for Injection and Argatroban Injection had passed the Generic Drug Consistency Evaluation. Additionally, Peramivir Injection was approved.

 

Mid-Year Shakeup: Chairman and Vice Chairman of China Meheco Resign as Q1 Net Profit Plummets by Nearly 50%; However, Q3 2024 Report Shows Net Profit Attributable to Shareholders at RMB 122 Million, a Year-on-Year Increase of 141.34%

 

Prior to the Liaoning Company transaction, China Meheco had announced its plan to acquire the remaining 46% equity interest in Kangli Pharmaceutical held by related parties for RMB 192 million. The aim is to make Kangli Pharmaceutical a wholly-owned subsidiary and accelerate Sanyang Pharmaceutical’s integration of its assets. By fully leveraging Kangli Pharmaceutical’s advantageous location in Hainan Medicine Valley, its owned land, ample factory and office space, and sufficient production capacity, China Meheco intends to enhance Sanyang Pharmaceutical’s production capacity and efficiency. It is reported that Kangli Pharmaceutical holds numerous intangible assets, including drug approval documents, patents, and trademarks. It can subsequently serve as a Marketing Authorization Holder (MAH) platform to facilitate the unified allocation of products and production capacity between the two companies, thereby achieving economies of scale and reducing procurement and production costs.

Mergers and Acquisitions Enter an Active Phase

In recent years, favorable policies for mergers and acquisitions (M&A) and restructuring have been frequently introduced. Particularly in sectors with relatively weak industrial foundations, such as biomedicine, there is encouragement to utilize various approaches—including M&A and restructuring, equity investment, and industrial funds—to adopt controlling or minority stakes as appropriate, thereby striving to secure core industrial resources and key technologies.

 

Among these, mergers and acquisitions (M&A) and restructuring among central state-owned pharmaceutical enterprises are accelerating. In addition to China Meheco, Sinopharm Group, China General Technology Group, and China Resources Group have all announced new moves from late 2023 to early 2024. Specifically, China Resources Double-Crane, a subsidiary of China Resources, announced its plan to spend RMB 3.115 billion to acquire 100% equity interest in China Resources Zizhu held by its controlling shareholder, Beijing Pharmaceutical Group. Sinopharm Group intends to privatize China Traditional Chinese Medicine Holdings Co. Limited for HKD 15.45 billion. Chongqing Pharmaceutical Holdings publicly announced that China General Technology Group plans to carry out strategic integration with Chonghua Pharmaceutical concerning Chongqing Medicine, which is the controlling shareholder of the listed company Chongqing Medical & Pharmaceutical Holdings.

 

Following the period of capital overheating, valuations in the biopharmaceutical sector have undergone a broad correction, gradually returning to reasonable levels. On the other hand, some innovative drug companies are facing pressure on their cash flows, and mergers and acquisitions (M&A) can provide these enterprises with much-needed capital infusion. Meanwhile, certain leading firms are attempting to expand their product pipelines or integrate existing businesses through M&A to achieve cost reduction and efficiency gains. In comparison, China Meheco’s acquisition of equity in a Liaoning-based company is more focused on the latter objective.