Sino Biopharm/F-Star Therapeutics: U.S., UK Coordinate National Security Reviews of Controversial Deal

Published on Oct 12, 2022

The Committee on Foreign Investment in the United States (CFIUS) and the UK’s Department of Business, Energy and Industrial Strategy (BEIS) are coordinating their national security reviews of the proposed purchase of Britain-based F-Star Therapeutics (FSTX), a company linked to research of monoclonal antibodies’ use as a Covid-19 treatment, by a Sino Biopharmaceutical (HK:1177) subsidiary, a source familiar with the matter said.  

The relatively small $161 million deal has attracted outsized attention—with investigations in the U.S. and UK—and delays because of the close ties between the Chinese government and Thailand-based Charoen Pokphand Group (CP Group), Sino Biopharm’s parent. 

“Discussions have taken place with respect to this deal” between the U.S. and UK agencies, the source said. But the source didn’t know whether those talks would result in the allied nations making the same decision on the deal.  

Some of CFIUS’s past work with foreign counterparts has led to the same conclusion about pending deals: In 2016, for example, U.S. and German authorities opposed the acquisition of German semiconductor equipment maker Aixtron by China’s Fujian Grand Chip Investment. Then-President Barack Obama blocked the deal, forcing the companies to abandon it.  

Experts not involved in the F-Star transaction said that even if the deal were to be approved, mitigation around intellectual property and export-controlled information would likely be warranted. CFIUS could require that F-Star establishes IT protocols to protect sensitive data and its R&D with U.S. businesses, they said.  

A subsidiary of Sino Biopharm, invoX, is seeking to gain control over F-Star. Sino Biopharm is controlled by CP Group, a Thai family-owned conglomerate whose senior chairman is Dhanin Chearavanont. The Forbes Thailand’s 50 Richest list for 2022 names Dhanin Chearavanont, 83, and his brother as the wealthiest billionaires in the country, with a joint net worth of $25.6 billion. The Chearavanont family, originally from Shantou, China, is considered one of the richest ethnic Chinese families in the world.  

According to securities filings by F-Star, on July 4, F-Star and Sino Biopharm filed a notice with BEIS. After reviewing the filing in mid-August, BEIS called for an in-depth investigation of the transaction, which extended the review for an additional 30 working days with the possibility of another extension, the filing stated.  

In early August, the companies filed a voluntary joint notice with CFIUS, which triggered a 45-day review that ended in mid-September. After the initial review, CFIUS informed the parties that the committee would undertake an in-depth investigation into the deal, thus extending the review by 45 days.  

Because of the still-pending regulatory approvals by BEIS and CFIUS, the companies extended the deal’s expiration date to November 1. It’s unclear when BEIS or CFIUS commenced their in-depth investigations.  

F-Star declined to comment. Sino Biopharm and BEIS didn’t respond to requests for comment. CFIUS is forbidden by law to discuss its reviews.  

Doubling down on biotech. Lately, the U.S. committee’s focus on biopharmaceuticals and life science has intensified, said a national security expert who has represented foreign companies before CFIUS. “No matter how small the deal is, CFIUS will conduct a thorough research and investigation,” the expert added.  

On September 14, the White House hosted a Summit on Biotechnology and Biomanufacturing, which was co-led by National Security Advisor Jake Sullivan and attended by Deputy Secretary of Defense Kathleen Hicks, among other administration officials, and congressional leaders such as Chairman of the Senate Select Intelligence Committee Mark Warner. Unveiled was a $2 billion initiative focused on securing biotechnological supply chains, lowering drug costs, improving domestic biotechnology research and reducing of security risks through U.S. investment in the National Nuclear Security Administration’s bio assurance program.  

The day after the biotech summit, President Biden issued an executive order directing CFIUS to monitor and review deals closely that could harm U.S. leadership in biotechnology, quantum computing, microelectronics, and artificial intelligence. Furthermore, the order requires CFIUS to pay special attention to industry investment trends and whether a specific investment in the biotech space could have consequences for national security.  

In the crosshairs. The summit and the executive order underscore the scrutiny the Sino Biopharm deal is facing. The committee will conduct a detailed analysis of national security risks with respect to Sino Biopharm, its ownership and ties to the Chinese government, said a second national security expert who asked for anonymity because of ongoing cases before CFIUS. 

“Strong ties to the Chinese government will likely be a disqualifier here,” he added.  

CP Group has made significant inroads in China and has invested in several sectors of the Chinese economy over the years. It was one of the first foreign companies to invest in Chinese agriculture in 1979 and was tasked with modernizing the agricultural sector under the five-year plan initiated by the Chinese Communist Party (CCP).  

It also operates Lotus, one of the largest supermarket chains in Asia, with a presence in China, Thailand and Malaysia. Founded in 1994 as a co-venture with UK-based Tesco, it has been the sole owner of the Lotus brand since 2021.  

In 2012, CP Group completed several lucrative transactions that demonstrated its close ties with the Chinese government. It acquired a 15.6% stake in China’s Ping An Insurance for $9.38 billion from global investment bank HSBC. The state-run China Development Bank co-invested and funded CP Group’s bid to acquire the insurance company.  

The same year, SAIC Motor Corporation, a Chinese state-owned carmaker, announced plans to build a joint venture with CP Group. SAIC would own a 51% stake, and CP Group would control 49%.  

CP Group also has a $4 billion contract from the Chinese government to build 13 in-country pig, poultry and shrimp farms. The industrial farms would supply Loftus supermarkets in China.  

Some foreign companies have partnered with CP Group to leverage its influence in China. In 2014, Itochu, a Japanese conglomerate, bought a 25% stake in Hong Kong-listed CP Pokphand Co (CPP), an agricultural arm of CP Group in China.  

“CPP’s main businesses are in China, so our main target through this alliance is China,” said Koji Takayanagi, a senior managing executive officer at Itochu. 

F-Star’s ties. While F-Star doesn’t directly participate in government-funded projects, according to the Capitol Forum’s research, it has deep business relationships with global biotech companies like Janssen, a subsidiary of U.S.-based healthcare giant Johnson & Johnson, and AstraZeneca, a Sweden-based biotech company.  

In October 2021, F-Star signed licensing agreements with Janssen to develop, research and commercialize several novel bispecific antibodies. Janssen will undertake each stage of development of the antibodies using F-star’s proprietary platforms.   

The deal included an initial $17.5 million upfront payment to F-Star with potentially $1.35 billion in research dollars. Janssen will have the exclusive right to research antibodies developed using F-Star’s technology and know-how.  

Earlier that year, in July 2021, F-Star signed an agreement with AstraZeneca to research and develop next-generation stimulator of interferon genes (STING) inhibitor compounds. STING contributes to activating the innate immune system to fight inflammatory and autoimmune diseases. AstraZeneca paid $12 million in the initial payment, and potential research dollars could top $300 million, according to a press release.  

In the U.S.,  research to develop monoclonal antibodies for the treatment of Covid-19 has been spearheaded and funded by the Defense Advanced Research Projects Agency (DARPA). One of the institutions and companies sharing in a $37.6 million DARPA grant is AstraZeneca.  

Comparable case? A very recent example that could be comparable to the F-Star case was the proposed $55 million acquisition of Snapdragon Chemistry by Asymchem, a China-based pharmaceutical research and production company. Formed as a spin-off from the Massachusetts Institute of Technology in 2014, Snapdragon specializes in chemistry technology.  

In September, Snapdragon announced that after a lengthy investigation CIFIUS had denied the deal with Asymchem because the parties wouldn’t agree to mitigation proposed by the committee to resolve national security concerns.  

CFIUS was likely concerned with advanced pharmaceutical technology owned by Snapdragon, which in February 2021 was awarded a $1.5 million DARPA grant to develop continuous manufacturing capabilities. 

“This grant will allow us to bring together expertise in automation and continuous manufacturing to create a platform technology for the manufacture of pharmaceutical intermediates and fine chemicals,” Snapdragon CEO Matthew Bio said at the time. “We expect this technology will become a key component of a secure national supply chain for the chemical components critical to health and human welfare.”