Baia Pharma Announces $123 Million Acquisition of 60.199% Stake in Baia Pharmaceutical to Expand into Innovative Drug Manufacturing

On the afternoon of May 20, Qingdao Baheal Medical Inc. (301015.SZ, hereinafter referred to as “Baheal Medical”), a company listed on China’s A-share market, announced that it plans to acquire a 60.199% equity stake in Shanghai Baheal Pharmaceutical Co., Ltd. (hereinafter referred to as “Baheal Pharmaceutical”) for RMB 880 million in cash., the specific arrangements are as follows:

Data compiled from public announcements; chart by VCBeat New Medicine

Prior to this transaction,Baheal GroupControls 61.794% of the equity interest in BAHEAL Pharmaceutical, and holds a total of 60.199% of the equity interest in BAHEAL Pharmaceutical through direct or indirect means, serving as the controlling shareholder of BAHEAL Pharmaceutical. Upon completion of this transaction,Baheal MedicalControls 61.794% of the equity interests in Baheal Pharmaceutical, and holds a total of 60.199% of the equity interests in Baheal Pharmaceutical directly or indirectly, serving as the controlling shareholder of Baheal Pharmaceutical.

Upon completion of this transaction, Baheal Pharmaceutical, Baheal Investment, Baheal Yiren, and Baheal Kanghe (collectively referred to as the “Target Companies”) will be included in the Company’s consolidated financial statements. This transaction also signifies that Baheal Medical has officially upgraded from a commercialization platform to a pharmaceutical industrialization platform supporting source innovation.

The acquired party, Baheal Pharmaceutical, is primarily engaged in the research, development, production, and sales of traditional Chinese medicine (TCM) products and generic chemical drugs. Its key products include Fuzheng Huayu, an exclusive TCM formulation for liver disease, and high-end formulations such as metformin, nifedipine, and celecoxib, which are based on sustained- and controlled-release technologies.

Public information indicates that Fuzheng Huayu, an innovative proprietary Chinese medicine independently developed by Baheal Pharmaceutical, is a product verified by evidence-based medicine to reverse liver fibrosis. It is the first proprietary Chinese medicine in the field of liver disease to complete Phase II clinical trials in the United States. This product has pioneered a new therapeutic approach of “dual anti-therapy” combining antiviral and anti-fibrotic treatments for liver diseases.

As of the end of 2023, sales of the Fuzheng Huayu product had covered nearly 6,200 hospitals across China, with plans to further expand into approximately 6,000 additional hospitals. This indicates substantial market potential for increasing the product’s sales volume, which will strongly support performance growth in this segment for BAHEAL Pharmaceutical. Currently, Fuzheng Huayu is the leading product by market share in the anti-hepatic fibrosis sector within the hospital market. Following its integration into the listed company system of Baheal Medical, the brand value is expected to be fully leveraged in the retail sector.

Furthermore, to ensure market supply of its products, Qingdao BAHEAL Pharmaceutical Co.,Ltd has undertaken the Phase II expansion project for its traditional Chinese medicine (TCM) production lines. This initiative includes adding a new active pharmaceutical ingredient (API) extraction line for its flagship product, Fuzheng Huayu, while simultaneously implementing technical upgrades to existing TCM extraction and formulation production lines. Supporting power equipment, utility systems, and environmental protection facilities have also been upgraded. The project is expected to become operational by the end of 2024. Upon completion, Qingdao BAHEAL Pharmaceutical will add an annual production capacity of 500 million capsules for Fuzheng Huayu. The increased output of Fuzheng Huayu is projected to drive growth in the company’s TCM business revenue.

By leveraging integrated strengths across various sectors, the proprietary Chinese medicine segment of Qingdao BAHEAL Pharmaceutical Co., Ltd. has maintained rapid revenue growth in recent years. Excluding the impact of short-term fluctuations in customer demand, the revenue from its proprietary Chinese medicine segment amounted to RMB 321 million, RMB 424 million, RMB 507 million, and RMB 529 million in 2020, 2021, 2022, and 2023, respectively, representing a compound annual growth rate (CAGR) of 18.17%.

In addition to modern research, development, and production of traditional Chinese medicine, Baheal Pharmaceutical possesses advanced technologies and processes in the R&D and manufacturing of high-end sustained- and controlled-release formulations. Its sustained- and controlled-release formulation plant in Qingdao has repeatedly passed the U.S. FDA’s cGMP inspections with “zero defects,” with multiple products manufactured on shared production lines for both the Chinese and U.S. markets and submitted for approval and commercialization in both countries concurrently. Among these, Naida® Metformin Hydrochloride, a well-known once-daily antidiabetic medication, is the first osmotic pump-controlled release formulation of metformin approved in China. It received FDA approval in late 2018 and was included in China’s National Reimbursement Drug List in 2023.

In addition to metformin products, Baheal Pharmaceutical’s key products—including duloxetine, nifedipine, and celecoxib—have been successively selected in the national centralized procurement program since 2020, thereby driving a rapid increase in the revenue of its chemical pharmaceutical segment.

Baheal Pharmaceutical’s major chemical drug products are either included in the centralized volume-based procurement (VBP) or covered by the National Reimbursement Drug List (NRDL) negotiations. It is evident that production capacity is a key factor in ensuring revenue generation from these blockbuster drugs.

To maintain stable production capacity, Qingdao BAHEAL Pharmaceutical Co., Ltd. completed technical upgrades to its chemical drug production lines in 2023, alleviating capacity constraints. Meanwhile, construction of the “Tablet, Granule, and Hard Capsule Production Workshop and Supporting Facilities (Phase III) Project” commenced in October 2023, with a total investment of approximately RMB 250 million and completion expected by the end of 2024. As production capacity expands, the manufacturing and sales scale of key products will increase. Additionally, approved but not-yet-commercialized products—such as Esomeprazole Enteric-coated Capsules, Febuxostat, Glucosamine Sulfate, and Lanthanum Carbonate Chewable Tablets—are scheduled to enter production starting in 2024.

In addition to the aforementioned products that are more widely recognized,Over the past two decades, Baheal Medical has incubated and operated multiple brands with annual revenues reaching hundreds of millions and billions of yuan, including the imported calcium brand Diqiao.^®, Indigestion Brand: Bite^®have long been household names;Its marketing network also covers more than 14,000 large and medium-sized hospitals and 400,000 pharmacies, establishing cooperative relationships with multiple multinational corporations (MNCs).

The revenue-generating capability driven by multiple blockbuster products is unquestionable. According to the announcement, Baheal Pharmaceutical reported operating revenues of RMB 635 million and RMB 760 million, and net profits of RMB 109 million and RMB 135 million in 2022 and 2023, respectively. The forecasted net profit for 2024 is RMB 148 million.

This acquisition will not only inject high-quality assets with strong profitability into Baheal Medical, bringing stable revenue and profits, but also introduce blockbuster products poised for rapid growth. Indeed, Baheal Medical has acquired a “prime cash cow” that delivers a steady stream of value.

This transaction is not a case of Baheal Pharmaceutical unilaterally generating substantial cash flow for Baheal Medical, but rather a story of mutual benefit and shared commitment.

Baheal Medical is a professional commercialization platform for health brands, with its core business focused on providing comprehensive commercial solutions for pharmaceutical manufacturers. Its operations span three key segments: brand management, wholesale distribution, and retail. Upon completion of this transaction, Baheal Pharmaceutical’s core products will leverage Baheal Medical’s established marketing channels and robust logistics and distribution network to achieve significant value amplification and further increase market share.

Meanwhile, by acquiring Qingdao BAHEAL Pharmaceutical Co.,Ltd, Baheal Medical can leverage the latter’s production and R&D expertise in liver fibrosis treatment and sustained/controlled-release formulations to enter the large-scale pharmaceutical manufacturing market. This move will expand its footprint across the upstream and downstream segments of the pharmaceutical industry, build a pharmaceutical industrialization platform driven by the dual engines of “manufacturing and commercialization,” and gradually form a scaled pharmaceutical business system with upstream-downstream synergy, thereby enhancing its overall market competitiveness.

The value of Baheal Medical’s industrialization platform extends even further. In recent years, Baheal Medical’s parent company, Baheal Group, has partnered with national-level research institutions to cultivate source innovation achievements, with strategic layouts in multiple innovative fields, including fully magnetically levitated artificial hearts, innovative nuclear medicine drugs, medical linear accelerators, electromagnetic navigation devices for ultrasound, and innovative drugs for anti-tumor therapy and bone regeneration.

Among these, innovative products such as the fully magnetically levitated artificial heart, ultrasound-guided electromagnetic navigation systems, and 12-lead home electrocardiogram (ECG) monitors have achieved commercial synergies with Baheal Medical. Baheal Medical has also secured the commercialization rights for a first-in-class (FIC) drug for treating osteonecrosis (PDC) and radiopharmaceutical conjugate drugs (RDCs) incubated by its parent group. This radiopharmaceutical product is China’s first independently developed Class 1 innovative drug in the field of nuclear medicine and is poised to submit its marketing application.

From a broader perspective, Baheal Medical has already established a comprehensive system spanning from the R&D of medical innovations to production and commercialization, forming an ecosystem-based Big Pharma model. In the future, leveraging its parent company’s innovation incubation strategy, Baheal Medical is poised to undertake the production and commercial operation of more original innovative achievements, facilitating their transformation into widely applied products and enhancing the overall efficiency and level of technology-driven healthcare services.

Overall, Baheal Medical’s layout in the industry chain is three-dimensional and multi-faceted. Its rational allocation of resources and proactive deployment of innovative products have driven its rapid development in recent years. In 2023, Baheal Medical’s brand operation business achieved a revenue of RMB 4.4 billion, a year-on-year increase of 18.91%, with a gross profit margin of 43.17%. The gross profit amounted to RMB 1.899 billion, accounting for 83.78% of the total gross profit.

In the future, with the long-term ecological win-win of Baheal Medical's industrial ecosystem, the growth ceiling for this leading domestic CSO will be raised once again.