Member Article

The Australian life sciences and biotech sector is likely to continue its resurgence over the next twelve months, with global trends driving strong M&A activity in life sciences and biotech M&A. We have identified 6 key themes for activity in this sector.

Three Key Opportunities

1. Demographic Trend

According to the Australian Institute of Health and Welfare, healthcare expenditure in Australia is growing faster than population growth and GDP growth. Further, data obtained from the Pharmaceutical Benefits Scheme (PBS) has revealed that during the period 2013 to 2015, the number of subsidised prescriptions in Australia rose by 1.25% and the number of non-subsidised prescriptions increased by 18.6%. Australia’s ageing population continues to remain a key factor in driving the demand for healthcare and pharmaceutical products in Australia, with the median age having risen three years over the last two decades and the proportion of Australians aged 65 and over expected to increase rapidly. We believe that these industry dynamics will drive the growth of companies servicing the Australian industry. This, in turn, should lead to greater investment and opportunistic M&A, including in relation to life sciences, biotech and pharmaceutical companies whose technologies are vital in the treatment of aged patients.

Globally, the UN predicts that the proportion of people over 60 years old will increase at a rate that outpaces the growth of any other age group in what it calls ‘one of the most significant social transformations of the twenty-first century’. This opens up important opportunities over the course of the next few years, particularly within China, which is likely to remain one of the most attractive markets for healthcare providers and pharmaceutical and biopharmaceutical companies.

China’s spend on healthcare is predicted to grow to $1 trillion in 2020. Many factors are fuelling this growth including:

• urbanisation;
• healthcare reforms;
• economic growth; and
• an increasing focus on health.

Above all, China’s aged population is increasing significantly. China’s 65 and over population, that accounted for an estimated 40% of the prescription drug market and up to 50% of the over-the-counter drug market in 2011, is predicted to triple to 329 million in 2050, larger than the population of the US today.

This represents a substantial opportunity for industry players and investors looking to help meet the growing demand for healthcare and pharmaceutical products within China – and Australian companies are well placed to operate in this space.

According to the Department of Foreign Affairs and Trade, China is Australia’s largest market for pharmaceuticals and this trend is expected to continue with the elimination of tariffs on pharmaceutical products by 1 January 2019. Pharmaceutical exports to China are also expected to continue increasing over the next five years as interest from China pushes medicinal pharmaceutical exports strongly out of the decline experienced from 2012 to 2015. China’s recent interest in vitamins and supplements companies (including those in Australia and New Zealand) continues to grow as food safety and quality are key focuses for Chinese consumers. Australian vitamins and supplements companies have a strong reputation overseas, and as the Chinese elderly account for over 50% of sales of health foods including supplements, this opportunity, while already huge, is likely to grow. We expect a sustained increase of Chinese investment into Australian vitamins and supplements companies as they seek to service the growing market and vertically integrate their offerings.

The Chinese market also provides opportunities for other types of Australian healthcare and medical service providers due to the population’s increasing focus on health. Spending for healthcare services in hospitals in China is predicted to grow from an estimated A$698 billion in 2017 to A $845 billion by 2018. The Australia-China Free Trade Agreement has enabled wholly Australian-owned hospitals to be established in China, so Australian medical service suppliers have an important role to play.

Case Study

China’s continuing appetite for acquisitions in the healthcare, pharma and bio space, is demonstrated by the recent acquisition of Vitaco Holdings Limited, an Australian and New Zealand nutritional products company, by a Chinese consortium comprising entities controlled by Shanghai Pharmaceuticals and Primavera Capital. The transaction was effected by way of court-approved scheme of arrangement.

MinterEllison advised Vitaco on the transaction, which featured a number of innovative structures and provisions, and followed on from other transactions in the sector, including the acquisition of Swisse by Hong Kong-listed company Biostime International Holdings. These transactions highlight the demand for Australian brands and products in China, that are regarded as “clean and green” when compared with domestic produce.

This is further borne out by the intentions of Shanghai Pharma and Primavera for Vitaco. In the scheme booklet, they note that they propose to expand the distribution of Vitaco’s products into potential new markets in the Asia Pacific region utilising Shanghai Pharma’s extensive retail pharmacy distribution network, particularly in China.

To continue reading this article please click HERE 

 

 

 

Link to article