Recently, Harmony Biosciences (06998.HK) released a blockbuster transaction announcement, announcing that it will enter into a strategic merger with Eton Pharmaceutical, a leading domestic comprehensive pharmaceutical enterprise integrating R&D, production and sales capabilities. This merger between Eton Pharmaceutical and Harmony Biosciences marks the strong collaboration between the two companies in China's pharmaceutical market, promoting the in-depth integration of their resources and technologies, and further enhancing the competitiveness of China's innovative drug R&D and commercialization sectors. Under this transaction, Harmony Biosciences is valued at US$197 million and Eton Pharmaceutical is valued at US$677 million. Harmony Biosciences will issue new shares to the existing shareholders of Eton Pharmaceutical through a new share offering to acquire all their equity interests in Eton Pharmaceutical. Upon completion of the merger, shareholders of both parties will jointly hold the equity interests of the combined entity, while the major shareholder of Eton Pharmaceutical will become the controlling shareholder of the combined entity. This merger between Eton Pharmaceutical and Harmony Biosciences is the first reverse acquisition case among biotech companies listed under the HKEX’s Chapter 18A rules, and also the only reverse acquisition case announced in the Hong Kong stock market recently. The transaction has gathered well-known investment institutions including Hillhouse Capital, OrbiMed, Sequoia Capital and top professional teams such as Morgan Stanley and Kirkland & Ellis. On August 5 this year, Harmony Biosciences also announced that it has entered into a licensing agreement and equity arrangement with TRC 2004, Inc. for GB261 (a novel differentiated CD20/CD3 bispecific T-cell engager (TCE)), which is one of the classic representative works of the currently popular NewCo model. As the lead counsel for this strategic transaction, Dr. Mengyu Lv, Head Partner of Kirkland & Ellis’ Asia Capital Markets Group, shared: “After nearly three years of market turbulence, capital operations and globalization of China’s innovative drug industry have ushered in new opportunities. How to utilize industry strategic resources, capital markets and legal tools to carry out industrial integration and optimize overseas expansion models is the key for Chinese innovative pharmaceutical enterprises to seize new opportunities at this stage.” Market participants and investors can easily see the signs of industrial integration from this merger between Eton Pharmaceutical and Harmony Biosciences. Upon completion of the merger, from Harmony’s perspective, Eton’s rich commercialization experience and excellent capabilities can quickly supplement and improve the backend product registration declaration, production, supply chain and commercialization capabilities that Harmony lacks, realizing a virtuous cycle where backend sales revenue feeds front-end R&D, and front-end R&D boosts backend sales growth; from Eton’s perspective, years of transformation and upgrading have enabled Eton to have comprehensive capabilities in R&D, production, supply chain and sales, forming a platform advantage. Harmony’s rich product pipeline will become a new performance growth point. In addition, the two parties will also fully leverage the advantages of domestic and overseas resources. While expanding China’s commercial development, they will layout overseas markets through overseas expansion methods including the NewCo model (such as GB261) to seek new incremental space. It is worth mentioning that before the announcement of the merger news, Harmony Biosciences had been suspended from trading for several days due to preparations for this transaction. After the announcement, the market reacted positively, and Harmony Biosciences’ stock price rose rapidly, with an intraday increase once exceeding 93%, fully reflecting the high optimism of secondary market investors towards the cooperation prospects. At the same time, this landmark strategic merger has also injected a triple boost from the industry, capital and market to many biopharmaceutical companies in distress. Dr. Lv said: “We look forward to the merger of Eton and Harmony creating a stunning chemical reaction. M&A and overseas expansion are the general trend for China’s innovative pharmaceutical enterprises, and the European and American markets have accumulated rich models and experiences. For entrepreneurs and investors, seizing new opportunities under the new situation is crucial. Building a highly flexible cross-border legal framework, diversifying the risks of asset co-location, conducting reasonable tax planning for cross-border transactions, designing innovative transaction plans, locking core interests in M&A and overseas expansion transactions and other topics all require advance planning.” Dr. Lv added: “As a leading global law firm, Kirkland & Ellis’ top global platform and complex transaction resolution capabilities will provide customers with optimal solutions and maximize their interests. Recently, we have been assisting in preparing more NewCo and industrial strategic integration projects, many of which draw on the market-leading project experience of our global platform. For example, this year we participated in leading AbbVie’s US$8.7 billion acquisition of Cerevel, which was jointly established by Pfizer and Bain Capital through integration.” Since the listing rules of the HKEX took effect in April 2018, Kirkland & Ellis has handled 36 listing projects in the life sciences industry; over the past five years, it has also led 29 privatization and M&A projects of Hong Kong listed companies. © 2021 Meishun (Hong Kong) Management Consulting Co., Ltd. and Meishun (Hangzhou) Management Consulting Co., Ltd. All rights reserved. Meishun Meiyin (Hangzhou) Consulting Management Co., Ltd. is a domestic subsidiary of Hong Kong Meishun Management Consulting Co., Ltd. under the same actual controller. Both companies are under the same actual controller, managed under the same China-based management system, and comply with the laws of Hong Kong and mainland China.