According to a report from the UK newspaper The Financial Times (FT), AstraZeneca (AZ, NASDAQ: AZN) has drafted plans to spin off its China business as a separate entity. Citing “three people familiar with the talks,” the UK-based pharmaceutical giant is said to have begun discussing the idea with bankers several months ago. The potential move aims to shelter the company against escalating geopolitical tensions and could involve a listing on either the Hong Kong or Shanghai stock exchanges, positioning the China business as a “domestic” entity to benefit in the local market.
Tentative Plans and Industry Precedents
The FT’s report includes several caveats, indicating that the plans are tentative. The unnamed sources noted that a separation might not ultimately take place, and several other multinational corporations (MNCs) have considered similar strategic approaches to the China market. An adviser to AstraZeneca mentioned that the plan had been considered several years previously but was set aside.
AstraZeneca’s History of Spin-Offs and China Market Significance
In late-2017, AstraZeneca announced it would spin off its China-based drug discovery team to form Dizal Pharma, a joint venture with the state-backed Chinese Future Industry Investment Fund (FIIF). Dizal later listed on Shanghai’s Sci-Tech Innovation Board (STAR), raising over USD 300 million in capital. China is a highly significant market for AstraZeneca, generating USD 5.79 billion in annual revenues in 2022 and accounting for 13% of the UK giant’s global sales. However, growth last year was flat due to China’s tightening market controls, including volume-based procurement (VBP) tendering and price cuts for leading brands involved in the national reimbursement system. The expectation is for single-digit growth to return in 2023, with Q1’23 sales up 8% year-on-year to USD 1.6 billion, on course to break through USD 6 billion this year.
CEO Pascal Soriot’s Comments and AstraZeneca’s Commitment to China
The question of whether AstraZeneca would consider spinning off its China business in light of geopolitical pressures was previously raised with CEO Pascal Soriot during the Q2 2022 earnings conference call. Soriot responded that the company does not comment on specific considerations but is always looking at various scenarios for different parts of the business. Soriot has been vocal about the positive contribution of the China business, stating in the Q1’23 earnings call that “China is back” in economic terms and represents a growing source of innovation. AstraZeneca has established a fund worth USD 1 billion with CICC and Temasek for investments in local healthcare companies and has carried out a string of major licensing deals with Chinese biotechs. Soriot regularly emphasizes that AZ remains fully committed to being “in China for the world,” with China’s biotech sector viewed as having the capability to deliver innovative drugs that are globally relevant.-Fineline Info & Tech
