Is China's pharmaceutical M&A market heating up? Several days ago, Shandong Keyuan Pharmaceutical Co., Ltd. disclosed multiple announcements, planning to acquire 99.42% shares of Shandong Hongjitang Pharmaceutical Group Co., Ltd. through share issuance, with a transaction value of approximately 3.581 billion yuan. Similarly, Yunnan Baiyao recently released an M&A document, with its wholly-owned subsidiary Yunnan Baiyao Group Traditional Chinese Medicine Resources Co., Ltd. acquiring 100% equity of Juyaotang Pharmacy through cash payment, with a total equity transfer consideration of 660 million yuan. A month earlier, China Biologic Products Holdings acquired Lixin Pharma at a $1 billion valuation, marking the year's largest acquisition deal.

With major deals emerging one after another, is the pharmaceutical M&A sector gaining momentum? While this question cannot be definitively answered at present, what's evident is that M&A transaction amounts have significantly increased this year. According to data from CLS Venture Capital Connect-Zhizhong, as of today, there have been 195 pharmaceutical M&A transactions domestically, down from 229 in the same period last year. However, the total transaction amount for this year has reached 21.447 billion yuan, more than double the same period last year.

**1/50 Success Rate**

The unique situation of rising values before volume reflects an intriguing parallel with the "dual nature" of the pharmaceutical M&A market. In today's M&A transaction market, pharmaceuticals are not a hot sector. Senior executives from leading securities firms' M&A divisions and multiple investors engaged in M&A transactions told reporters that pharmaceutical sector demand is not particularly active in this year's market, with semiconductor and new energy targets being the daily focus.

"Very few of our portfolio companies can exit through M&A. Out of our 200 portfolio companies, only 4 have successfully exited through M&A so far. It's extremely difficult, and each case is unreplicable," said an investor with exit experience.

The one-in-fifty success rate is acknowledged by other M&A practitioners. In their experience, both money and people are issues in pharmaceutical M&A transactions.

"Price is the most difficult consensus to reach. During the good market conditions in previous years, valuations reached 2 billion yuan directly after several rounds, with different institutions having different costs per round, resulting in varying acceptable price points. How to coordinate various parties' interests during M&A requires entrepreneurs to have strong communication skills or provide more resources," analyzed the aforementioned investor.

Touking Biotech's acquisition of Kanglu Bio serves as an excellent case study. Earlier this month, Touking Biotech announced plans to acquire 82% of Kanglu Bio's shares for 328 million yuan, gaining controlling interest. The transaction had been in contact for over a year, with extensive negotiations around transaction details.

According to the announcement, the entire transaction will be conducted in three phases across 2025, 2026, and 2027, with external investors completely exiting in the first phase (2025). The transaction adopted differentiated pricing - same shares, different prices.

Based on announcement data calculations, the approximate transaction considerations for each round of investors are: Angel investors 23.6 yuan/share, Series A investors 43.4 yuan/share, Series B investors 54.1 yuan/share, Series B+ investors 60.5 yuan/share. Among these, Yuansheng Venture's participation in Series A had a clear amount - it invested 30 million yuan exclusively and recovered 62.264384 million yuan this time.

However, according to sources, the final round valuation was significantly higher than this transaction pricing, meaning some investors still exited at a loss.

Beyond investment institutions, company founders bore more burden, not only accepting the lowest consideration in this transaction but also facing numerous stringent clauses. According to transaction requirements, Kanglu's founder must complete a three-year net profit gamble, with net profits for 2025-2027 not less than 22 million, 31.5 million, and 38 million yuan respectively. Simultaneously, Kanglu Bio must ensure R&D expenses account for no less than 10% of revenue.

In the clauses, Touking Biotech established four reward and penalty lines based on completion rates - three penalties and one reward. Only when net profit targets reach 100% or above, no goodwill impairment occurs, and accounts receivable commitments are fulfilled, can 30% of the excess be used for equity incentives. If targets are not met, founders must compensate with their held shares according to standards.

Even so, investors view this as a good outcome. "Kanglu is a profitable IVD segment leader, which is why it could be acquired by a listed company. 99% of innovative drug companies without profits or still in losses cannot reach this stage," the investor stated bluntly.

**$1 Billion High Valuation**

However, this year's market seems to have produced an outlier - Lixin Pharma, which every interviewee mentioned as a special case.

In July this year, China Biologic Products Holdings announced it would acquire 95.09% equity of Shanghai Lixin Pharma for a maximum total consideration of $950.9 million. Combined with the previously held 4.91% equity from Series C financing, Lixin Pharma would become its indirect wholly-owned subsidiary.

Before this acquisition, Lixin Pharma's last funding round was Series C in October 2024, with a valuation of approximately 2.9 billion yuan. This means the buyer offered three times the price in less than a year.

Notably, Lixin Pharma is not a revenue-free innovative drug company. By the end of last year, Lixin Pharma secured a major deal with Merck - the parties reached an agreement where Merck obtained exclusive global development, production, and commercialization rights for Lixin Pharma's bispecific antibody LM-299, with an upfront payment of $588 million plus up to $2.7 billion in milestone payments, totaling $3.288 billion (approximately 23.7 billion yuan).

China Biologic Products Holdings and Lixin Pharma had prior connections. In Series C financing, China Biologic invested 142 million yuan for approximately 4.91% equity and exclusive rights to CCR8 monoclonal antibody LM-108 in mainland China.

At acquisition time, Lixin Pharma had $450 million cash on its books, making China Biologic's actual cash outlay approximately $500 million for the $950.9 million consideration.

With a $1 billion valuation and $500 million cash outlay, this became the year's largest innovative drug company acquisition.

"Perfect timing, location, and people - this type of transaction is almost unreplicable," multiple investors unanimously judged.

In contrast, among acquisitions over 1 billion yuan this year excluding Lixin Pharma, no innovative drug companies appeared - all were traditional pharmaceutical companies.

"Lixin has certain certainty, having received over $500 million upfront payment from a multinational pharmaceutical company already proves its strength. Even without China Biologic's involvement, it had complete opportunities for independent listing. Projects with such qualifications usually have founders with weak selling intentions," the aforementioned investor noted.

"Project innovation, commercialization, and selling willingness often form an 'impossible triangle,'" he analyzed. Moreover, buyers capable of providing hundreds of millions in cash are extremely rare, while also possessing the capability to manage and operate such professional projects. Even internationally, pharmaceutical M&A transactions have success rates below 30% in subsequent operations management.

However, the head of M&A business at a leading securities firm pointed out that Lixin's transaction opened a window for future pharmaceutical M&A markets - BD transactions can reshape company valuations. He believes that in the current BD boom, multinational companies are pricing Chinese innovation with real money, and domestic capital's value perception will begin to shift.

In the first half of this year, Chinese innovative drug BD transactions reached over 50 overseas deals by the end of June, with total transaction amounts exceeding $48 billion (approximately 343.38 billion yuan), already approaching last year's full-year amount.

In the M&A executive's view, this BD wave represents a concentrated release of domestic innovative drug companies' decade-long accumulation, while due to increased financing difficulties, many innovative drug companies have turned to BD transactions to supplement funding.

In this process, innovative drug companies gained access to the "table" through BD deals, making contact with international buyers.

"There aren't many domestic buyers capable of 'large acquiring small' - most M&A transactions are 'medium acquiring small' or 'medium acquiring micro-small.' Due to risk preferences, they prefer buying commercialized mature businesses, which doesn't match innovative drugs and devices. This is why innovative drug targets might only account for about 5% in M&A. But after this BD wave lays the foundation, the situation might change, with international buyers joining in," he analyzed.

In fact, multinational pharmaceutical companies have already taken action. In February this year, AstraZeneca announced acquiring Fibrogen China for $160 million, obtaining all rights to roxadustat in China; Danish biotechnology company Genmab announced acquiring ProfoundBio for $1.8 billion.

The BD wave is connecting domestic and international valuation perceptions, accumulating energy for M&A breakthroughs.

The real turning point may lie within two forces: valuation system reconstruction brought by international buyers, and technology integration demands catalyzed by the growth of domestic giants. However, fundamental transformation still requires industrial ecosystem evolution.

"When China produces a batch of pharmaceutical companies with hundred-billion market capitalizations, technology integration-type M&A will explode," pharmaceutical investors judge.