Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Have money, can't buy.

That's the dilemma facing China's drugmakers as they look to acquire overseas assets to sate the country's growing healthcare needs. Snapping up vitamin producers and the like hasn't proved a problem, but snaring actual pharmaceuticals manufacturers is a different matter, and will be put to the test as Germany's Stada Arzneimittel AG hits the brakes on deal negotiations.

Stada Chairman Carl-Ferdinand Oetker cancelled presentations to bidding groups late Tuesday and, according to people familiar with the matter, is driving management to cut costs and raise profit guidance as he maneuvers for higher offers.

That buys time for Shanghai Pharmaceuticals Holding Co., which is deciding whether to join forces to bid with private equity firm CVC Capital Partners Ltd. At about 3.6 billion euros ($3.9 billion), Stada isn't cheap, and if Shanghai Pharma wins, it could end up being the biggest overseas drugmaker in Chinese hands.

Shanghai Pharma's interest in Stada comes as it battles for space in an increasingly fragmented domestic market. Asia's biggest economy has about 5,000 drugmakers, many of which supply the raw materials for overseas companies' generic pills, and competition is intense. Acquiring brands from developed markets that have high regulatory standards provides something of a quick fix, allowing local Chinese firms to distinguish themselves from the melee.

Shanghai Pharma is already one of China's biggest drug distributors, and has been consolidating that position by buying up smaller firms. The group had $1.8 billion in cash and cash equivalents on its balance sheet as of Sept. 30, data compiled by Bloomberg show.

On a High
Acquisitions by Chinese companies of offshore pharmaceuticals firms have been rising
Source: Bloomberg

The biggest Chinese takeover of an international drugmaker to date is Shanghai Fosun Pharmaceutical Group Co.'s $1.26 billion tilt for 86 percent of India's Gland Pharma Ltd., whose generic injectables are sold mainly in the U.S.

Last May, a group controlled by Creat Group Corp. signed an agreement to acquire plasma biotherapeutics company Bio Products Laboratory Ltd. for 820 million British pounds ($1 billion). China's Creat Group is also in talks to purchase German cell culture provider Pan Biotech for about 10 billion yuan ($1.4 billion) to expand its health-care assets in Europe.

Those first two transactions are still awaiting regulatory approval, however. Outside of them, Chinese offshore pharmaceuticals deals have focused on vitamin makers, particularly in Australia, whose clean and green image is favored on the mainland. Guangzhou-headquartered Biostime International Holdings Ltd. owns Melbourne's Swisse Wellness Group Pty, while Shanghai Pharma bought Sydney-based Vitaco Holdings Ltd. last year.

Small Fry
International acquisitions of drugmakers and medical-devices firms by Chinese companies haven't been that big on the whole
Source: Bloomberg

The challenge for Chinese companies is that it's not often big names like Stada come up for sale. And when they do, global players that are equally flush with cash generally prevail.

Several have tried, and failed -- witness China Grand Pharmaceutical & Healthcare Holdings Ltd.'s ultimately unsuccessful plays for the U.S. operations of Swedish drugmaker Meda AB and the North American generic drug business of Belgium's UCB SA.

On top of that, regulatory approvals in the West tend to be more stringent if a Chinese buyer is involved and there is a risk that patents could be compromised. Then there's Beijing's clampdown on capital outflows, which is making all sorts of outbound acquisitions that much harder.

What Shanghai Pharma does next remains to be seen. But losing Stada could prove painful for its business in the long run.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at

To contact the editor responsible for this story:
Katrina Nicholas at