AstraZeneca Explores Break-Up of China Business Amid Rising Geopolitical Tensions

AstraZeneca, the Anglo-Swedish drugmaker, is considering plans to separate and list its business in China as a way to protect itself from escalating geopolitical tensions. The company has been in discussions with bankers regarding this option, joining a growing number of multinational corporations exploring similar measures. However, it is important to note that the separation may not materialize, and alternative locations such as Shanghai are also being considered.

Rising Tensions Between China and the United States

The discussion around the potential break-up of AstraZeneca’s China business highlights the restructuring challenges faced by multinational corporations as they navigate the growing friction between China and the United States, along with its allies.

Restructuring AstraZeneca’s China Operations

AstraZeneca’s proposed separation involves creating a separate legal entity for its China operations while retaining control over the business. The idea has been under consideration for a few years but was put on hold due to a downturn in biotech stocks. However, given the current geopolitical climate, multinational companies are increasingly exploring similar strategies to enhance flexibility and mitigate risks.

Benefits of Separation and Listing

A separate listing of AstraZeneca’s China unit in Hong Kong or Shanghai could insulate the company politically from potential crackdowns by China on foreign businesses. Additionally, it would provide a separate source of capital and help investors in the remaining company mitigate exposure to China-related risks. Furthermore, pursuing a national listing could help AstraZeneca strengthen its position in China, gain Beijing’s support for pharmaceutical innovation, and expedite approvals for Chinese-developed therapies.

AstraZeneca’s Prior Engagements in China

AstraZeneca has previously sought separate funding for its Chinese operations. In 2017, it established a research and development (R&D) joint venture called Dizal Pharmaceutical, listing it in Shanghai. The company’s interest in the Chinese market is evident, as it has expanded its presence and obtained drug approvals for various medical conditions.

China’s Growing Importance in Pharmaceuticals

AstraZeneca’s focus on China stems from the market’s attractiveness, with its large and aging population experiencing health issues attributed to smoking, pollution, and Westernized diets. The Chinese government has been streamlining the approval processes for innovative treatments, encouraging pharmaceutical companies to offer more than just their older or generic drugs in the country.

AstraZeneca’s Collaboration and Expansion in China

AstraZeneca has expressed interest in collaborating with Chinese biotech companies. The company’s CEO, Pascal Soriot, has stated that there are no restrictions on acquiring Chinese assets. A recent partnership worth $600 million with Shanghai-based LaNova Medicines exemplifies AstraZeneca’s commitment to global licensing and expansion in the Chinese market.

Navigating Geopolitical Risks

AstraZeneca acknowledges the need to manage geopolitical risks without becoming overly entangled. The president of the company, Michel Demaré, emphasizes the importance of staying agile and adapting to mitigate potential challenges arising from geopolitical dynamics.

Conclusion

AstraZeneca’s exploration of breaking up its China business and listing it separately in Hong Kong or Shanghai is a strategic response to the rising geopolitical tensions between China and the United States. The proposed separation would provide the company with greater flexibility, insulation from political risks, and access to additional capital. It also aligns with China’s push for pharmaceutical innovation and represents AstraZeneca’s continued commitment to the Chinese market.

AstraZeneca has been drawing up plans to break up its business in China and list it separately in Hong Kong as a way to protect the company from rising geopolitical tensions.

The Anglo-Swedish drugmaker began discussing the idea with bankers several months ago and is among a growing number of multinational companies now considering the option, according to three people familiar with the talks.

Ultimately a separation may not happen, people themselves warn. One of the people said it was also possible to list the entity in Shanghai.

The discussion shows the significant restructuring that multinational corporations could be forced to undertake as they adapt to the increasing friction between China and the United States and its allies.

Under the floors AstraZenecawhich is the UK’s largest publicly traded company by market value at £183bn, would cut its China operations into a separate legal entity, but retain control of the business.

The idea has been “on the table for a few years,” an adviser to AstraZeneca said, adding that it had been sidelined until recently due to a global downturn in biotech stocks.

“Every multinational with a strong business in China” appears to have been considering a similar move, said a senior banker based in Asia. “Even if it’s just the option to give you flexibility in the future, it’s worth thinking about.”

A person briefed on AstraZeneca’s plans said listing a separate unit in Hong Kong or Shanghai could insulate it politically from any moves by China to crack down on foreign companies, making it a more conceivably domestic Chinese business. It would also offer a separate source of capital.

They said the separate listing could also help investors in the remaining company reassure themselves that they have less exposure to China-related risk.

A pharmaceutical firm adviser added that pursuing a national listing could help AstraZeneca woo Beijing’s backing for pharmaceutical innovation and gain faster approvals for Chinese-developed therapies.

It wouldn’t be the first time the pharmaceutical group has sought separate funding for its operations in China. In 2017 AstraZeneca created an R&D joint venture with a Chinese fund. The firm, Dizal Pharmaceutical, was listed in Shanghai two years ago.

AstraZeneca said it was “not commenting on any rumors or speculation about future strategies or mergers and acquisitions”.

AstraZeneca is China’s largest foreign pharmaceutical company by sales, generating $1.6 billion in the country in the first quarter. “China is more important to AstraZeneca than [to] other major pharmaceuticals,” the consultant said. He has expanded his business into China, with recent drug approvals for cancer and one for a rare disease.

China is an attractive market for pharmaceutical companies due to its large and elderly population, increasingly affected by diseases caused by smoking, pollution and Westernized diets. The Chinese government has been speeding up approval processes for innovative treatments, seeking to encourage drugmakers to branch out beyond offering only their older or generic treatments in the country.

AstraZeneca also said it is interested in making deals with Chinese biotechs. After returning from a tour of the country, chief executive Pascal Soriot said in April the company had “no restrictions” on buying Chinese assets. Last month it signed a $600 million partnership with Shanghai-based LaNova Medicines to globally license a possible cancer drug.

Michel Demaré, the president of the company, told the Financial Times last month: “When you are a global company like AstraZeneca you always have to deal with geopolitical risk and you have to try to manage it without getting too involved.”