HONG KONG – 3SBio Inc. continues along its expansionary path with a move to raise the stake it holds in Shanghai CP Guojian Pharmaceutical Co. Ltd. The latest acquisition is another step in a push toward full integration of the two companies.

Through its non-wholly owned subsidiary Shanghai Hongshang, 3SBio, of Shenyang, acquired a 38.5 percent equity interest in Lansheng Guojian, which in turn holds a 41.69 percent equity interest in CP Guojian. The deal is estimated at ¥989 million (US$150 million). (See BioWorld Today, Oct. 24, 2015.)

The same 3SBio subsidiary also acquired a 0.73 percent equity interest directly in CP Guojian for around ¥44 million (US$6.7 million).

After the latest deal is done, 3SBio will hold about 40 percent of the overall equity in CP Guojian, up from 29 percent.

"We are targeting at expanding our product portfolio," said Jiang Fei, director of business development at 3SBio told BioWorld Today. "We see a very mature platform, well-developed manufacturing facilities and, most importantly, their products, which have promising prospects in the domestic market in China and overseas, like in the U.S. and Europe."

"We are aiming for a full integration in the future," Jiang said.

CP Guojian, which was founded in 2002, has two biosimilar products in the market now. Yisaipu is a biosimilar to Amgen Inc.'s anti-inflammatory drug Enbrel (etanercept). Xenopax is a biosimilar to Biogen Inc.'s Zinbryta (daclizumab high-yield process) anti-organ rejection treatment. Yisaipu had a dominant market share of 61 percent in Mainland China in 2013, according to data from IMS Health.

3SBio was delisted from Nasdaq in a 2013 privatization deal led by CEO Jing Lou. It issued shares again in Hong Kong in June 2015 in a $711 million IPO. One of the aims of the share offering was to build a war chest to fund acquisitions. (See BioWorld Today, June 12, 2015.)

3SBio rolled out its acquisition plan for CP Guojian two years ago with an eye to emerge as China's biopharma leader. In 2014, 3SBio started the acquisition process with the purchase of a 6.96 percent stake in CP Guojian. In November last year, 3SBio paid ¥$1.4 billion (US$213 million) for a controlling stake in the Shanghai company through a complex transaction with four existing large shareholders. The transaction earned 3Sbio as much as 54.64 percent of CP Guojian's controlling shares.

Ultimately, the acquisition should benefit both companies, said Deutsche Bank in a note after last year's deal. The analyst pointed out that a merger between the two companies could create long-term value though efficiency improvements on both sales operations and R&D.

3SBio will benefit from the integration in various ways, said David Li, assistant vice president for health care research at Bocom International Holdings Co. Ltd. Both companies could benefit from an uptick in profits, synergies from the combination of R&D teams and sales teams, and potential catalysts generated by CP Guojian's pipeline that includes the monoclonal antibody Saiputing, Jiantuoxi for the treatment of immune rejection and Yilairui for the treatment of auto-immune diseases.

There are some concerns, however, that CP Guojian's decreasing net profits could cast a shadow on 3SBio's financials.

In 2014, CP Guojian Pharma reported revenue of ¥780.1 million, a 5.4 percent year-on-year increase. However, the company also reported net profit after taxes and extraordinary items of ¥213.4 million, a 28.5 percent year-on-year decrease.

"3SBio's management also guided that CP Guojian Pharma would target to achieve a profit of around ¥300 million in 2016," Li wrote in a research note. "If we assume CP Guojian Pharma records a similar performance in 2H15 as 1H15, its profit would be approximately ¥178M in 2015. In other words, CP Guojian Pharma needs to achieve an approximately 68.5 percent year on year increase in its profit to meet the target.

"We do not rule out the possibility that CP Guojian Pharma can achieve this target. However, given the sector-wide slowdown, we are quite conservative on this," said Li. "Currently, the major pipeline products from CP Guojian Pharma include Saiputing, Jiantuoxi and Yilairui, which are in phase III clinical trials. It usually takes years for a drug to enter different provinces and achieve significant revenue contributions. In the next two years, the profits from the above pipeline drugs would not be significant, in our view."

3SBio's most recent financial report for the first half year of 2015 released in August showed the company's revenues rose 41.9 percent to ¥790 million and net profit hit ¥242 million, an increase of 25.5 percent.

The acquisition news sent 3Sbio's shares to HK$9.8 (US$1.26) on Wednesday, up 0.93 percent.