AstraZeneca may separate its China operations into a standalone company that would conduct an IPO in Hong Kong or Shanghai, with the goal of protecting its China business from east-west political tensions.

Although the China operations would be a separate entity, the parent company would retain control. The spinout plans, which are not definite, were revealed in a Financial Times article. Instead of the new company, AstraZeneca may choose to simply add a Shanghai listing of the entire company as an alternative.

According to several insiders, AstraZeneca began discussions with bankers a few months ago. It is not the first to explore this move. Recently, the California venture capital company Sequoia announced it would spin out its China business into a “completely independent” entity named HongShan.

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AstraZeneca books $5 billion in revenues from its China business, about 13% of its total revenue last year. In 2019, the company announced a joint venture with China International Capital Corporation (CICC) to raise $1 billion to fund China life science startups.

According to the FT writeup, an AstraZeneca advisor said the spin out plan has been “on the table for a few years,” but was put on hold until recently due to the global slum in the prices of biotech stocks. Another source, an Asia-based banker, said, “Every multinational with a strong China business” seems to have considered a similar move. Even if it’s just the option to give you flexibility in the future, it’s worth thinking about.”

A China-based company would make AstraZeneca’s China operations seem more like an actual China company, lowering its exposure to the difficulties of China-US relations and any crackdown on US companies and their western allies. The China entity would also have access to a new source of capital and could seek financial support from Beijing for drug innovation and perhaps faster approvals from China regulators.

In May, AstraZeneca signed a partnership worth up to $600 million to acquire global rights from Shanghai’s LaNova Medicines for a pre-clinical antibody drug conjugate.

This article was first published in ChinaBio Today on June 20, 2023