Cardinal Health Inc. (NYSE: CAH) put its Cardinal Health China business up for sale in July of this year, following concerns that upcoming drug distribution reform could threaten the company’s growth. Cardinal’s China business is the eighth largest drug distributor in the country, operating 14 direct sales units and 17 distribution centers that cover 322 cities and 11,000 medical institutions.
The bidding process was very competitive, according to Reuters, and names like Warburg Pincus were rumored to have competed in the final rounds, among other private equity and Chinese pharmaceutical bidders.
On November 14th, Cardinal Health announced that Shanghai Pharmaceuticals Holding Co., Ltd. (OTC: SHPMY) was acquiring the Chinese company for $1.2 billion. Shanghai Pharmaceuticals researches, develops, manufactures, and distributes pharmaceutical products in China. Reuters reported that Cardinal Health China generated revenue of 25.5 billion yuan ($3.85 billion) in 2016, producing a revenue multiple of 3.1x.
The deal came at the right time for Shanghai Pharma, which may also be affected by upcoming drug delivery legislation in China. Beginning in 2018, Beijing has introduced a two-invoice procurement system to streamline the country’s healthcare distribution chain. Drug manufacturers currently work with a single distributor to directly supply products to healthcare facilities. The overhaul will negatively affect distributors without access to big manufacturers in China.
The sale includes Cardinal Health’s pharmaceutical and medical products distribution business in China. The divestiture does not include Cardinal Health’s remaining businesses in China, including Cordis, its recently acquired Patient Recovery business, its medical sourcing team or other functions.