Exclusive: US Cardinal Health puts $1.5 billion China business on retard – sources

HONG KONG (Reuters) – U.S. drug distributor Cardinal Health has put a China business adult for sale, sketch penetrating seductiveness from state-backed Chinese curative firms in a understanding that might be value adult to $1.5 billion, sources informed with a matter said.

Shanghai Pharmaceutical Holding Co Ltd, China Resources Pharmaceutical Group Ltd and Sinopharm Group Co Ltd are among those wanting to buy Cardinal Health China, one of a nation’s largest drug distributors, pronounced a initial source who had approach believe of a matter. A second source reliable a sale process.

Cardinal wants to exit over worries China’s arriving drug placement remodel could delayed a growth, according to a initial source. The Ohio-based association has also been diversifying, and in Apr announced a $6.1 billion understanding for Medtronic Plc’s medical reserve units.

It has hired Lazard as an confidant for a China sale, according to a sources. The initial turn of behest is due around Friday, pronounced a initial source.

Cardinal’s China business, that operates 16 placement centers in 20 cities, generated over $3.5 billion in income final year, compared to over $3 billion in 2015, according to a gain report.

The U.S. association could fetch a cost in a operation of $1.2 billion to $1.5 billion, pronounced a initial source.

Cardinal, Shanghai Pharma and CR Pharma declined to criticism while Sinopharm and Lazard didn’t respond to Reuters’s ask for comment. The sources declined to be identified given a talks are not public.

The designed sale comes after Beijing in Jan introduced a supposed “two-invoice” buying complement for drug placement on a hearing basis, as partial of a broader renovate of a country’s fragmented, random medical sector.

China has for over a decade been deliberation streamlining a multi-layered drug placement complement that increase intermediaries and drives adult drug prices.

Under a new mechanism, that is approaching to be entirely implemented in 2018, drug manufacturers can usually work with a singular distributor that directly reserve products to medical comforts such as hospitals.

The renovate is approaching by attention insiders and analysts to reshape China’s drug placement landscape, with distributors that miss links to clever manufacturers and medical comforts probable to be cut out of a supply chain.

“The new process is expected to fist margins for many distributors in China. They will be underneath vigour for destiny profitability,” pronounced a initial source. “It does make Cardinal and others worried.”

The source combined that while a pierce will also impact state-owned pharma firms, clever subsidy from Beijing to emanate “national champions” in pivotal industries and post-deal synergy gains still make a aim appealing to them.

The state-owned pharma firms have been looking to expand.

Shanghai Pharma, corroborated by a Shanghai government, pronounced in May it might bid for German general drugmaker Stada, though Reuters after reported it had unsuccessful to strech an agreement with a behest consortium.

CR Pharma, a section of state-backed firm China Resources Holdings, manufactures and distributes drugs in China underneath well-know brands, including “999”. It lifted about $1.8 billion by a Hong Kong inventory late final year, that helped feed a coffers.

In 2010, Cardinal became a initial vital U.S. wholesaler to deposit in China’s drug placement marketplace with a $470 million takeover of secretly hold Zuellig Pharma China, famous locally as Yong Yu, a largest pharma importer in a country.

Cardinal has given acquired several other Chinese distributors and rebranded a whole business as Cardinal Health China.

Reporting by Julie Zhu and Kane Wu; Additional stating by Carl O’Donnell in NEW YORK; Editing by Muralikumar Anantharaman

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