Actavis to Exit China as Unfriendly Government Not Worth It

Jan 15, 2014 8:22 pm ET

Jan. 16 (Bloomberg) -- Actavis Plc, the second-biggest generic drugmaker by market capitalization, said it will end its presence in China because of the difficult business climate.

While the country has more than 1.3 billion potential customers, the government has made it a difficult place to conduct business, Actavis Chief Executive Officer Paul Bisaro said in an interview. The company has sold one operation there and is in talks to sell another.

“It is not a business friendly environment,” Bisaro said at the JPMorgan Chase & Co. health-care conference in San Francisco. “If we’re going to allocate capital, we’re going to do so where we can get the most amount of return for the least amount of risk. And China is just too risky.”

Actavis, based in Dublin with operations in Parsippany, New Jersey, has been expanding rapidly around the world through acquisitions. China isn’t yet a large business for the maker of generic drugs, which has a few hundred employees in the country and gets about 4 million euros ($5.4 million) to 5 million euros in profit from the region, Bisaro said.

The company fell 2.3 percent to $181.80 at the close in New York. The generic-drug maker’s shares have more than doubled in the past 12 months. The person who answered the phone at China’s National Development and Reform Commission’s press line declined to be identified and could not immediately comment on Actavis exiting the country. A fax sent to the line was not immediately answered.

Some U.S. and European drugmakers such as London-based GlaxoSmithKline Plc have been under investigation by Chinese authorities in connection with marketing practices and bribery since at least June, when Glaxo announced a probe.

Fair Hearing

Actavis hasn’t faced any accusations of corruption. If such legal problems ever arose in China, Bisaro said he isn’t confident the company would get a fair hearing.

“If something goes wrong, you need to be able to go to the government and say, ‘Help me.’ And if the government says no, that’s a problem.”

Given Actavis’s small presence in China, “it wasn’t worth the aggravation, the frustration or the concern,” he said.

Bisaro said there doesn’t appear to be a level playing field, which makes it hard for companies to compete. “You need a certain consistency in application of rules, and I’m not certain China has achieved that consistency yet.”

Instead, Bisaro plans to spend the company’s energy on other regions. He predicts the industry will continue to consolidate as it looks to improve profit margins and find cost savings through synergies.

Acquisition Potential

A generics mega-merger would likely be very profitable for the companies involved. “If you think about the big guys, let’s say the top four generics players, we probably all have the same products in development, we have commercial operations in the same countries and we probably have synergy numbers that are astronomical,” he said.

Bisaro sees barriers to such a deal including the publicly stated desire of the companies to remain independent.

“As we think about our options, we like to keep them all open,” he said. “If the right deal gets presented, we’ll give it a good look.”

One potential target is Pfizer Inc.’s line of off-patent products, which had sales of $10.2 billion in 2012 and is being divided into its own business unit by the New York-based drugmaker.

“Everybody will be interested in it,” Bisaro said.

--Editors: Andrew Pollack, Romaine Bostick