A Chinese pharmaceutical company has abandoned its acquisition of a US-based chemical technology business after failing to address concerns raised by the Committee on Foreign Investment in the United States.
Snapdragon Chemistry, which is headquartered in Massachusetts, announced on Friday the collapse of its sale to Asymchem Laboratories after both companies failed to reach an agreement with the foreign investment review body.
Tianjin-based Asymchem is a contract development and manufacturing organisation, which allows major pharmaceutical companies to outsource certain aspects of their business from drug development to manufacture on a contract basis.
Asymchem agreed to acquire Snapdragon in February, although both companies had been collaborating since the second half of 2020 following the former’s strategic investment in the latter.
At the time of the deal’s announcement, Asymchem said Snapdragon would continue to operate as a standalone business and continue with its lab and manufacturing facility expansion in Massachusetts. Asymchem expected the deal to close in the second quarter of this year.
However, the companies were unable to convince CFIUS to sign off on the deal nor reach a satisfactory mitigation package. The foreign investment review body has the authority to negotiate, enter into or impose and enforce conditions to mitigate any national security risks that arise from certain deals.
Snapdragon’s president and chief executive Matthew Bio said on Friday that the company is “disappointed this deal was unable to be completed”.
He said the company remains committed to expanding its “domestic manufacturing capacity” and delivering “a full range of drug development services” to its clients.
Snapdragon has long enjoyed a productive relationship with Asymchem and it will continue that collaboration on current and future projects, he added.
CFIUS, Snapdragon and Asymchem did not respond to requests for comment seeking clarification about the concerns identified by the US foreign investment review body .
Last month, Viston United Swiss cancelled its takeover of Petroteq Energy – a US-based eco-friendly oil producer – after CFIUS rejected a joint filing by the companies. In addition to mandatory filings, companies can also voluntarily file a notice or short-form declaration to receive a safe harbour against future challenges.
David Plotinsky, a partner at Morgan Lewis & Bockius in Washington, DC, said it is relatively rare for CFIUS’s mitigation measures – such as rendering the foreign company a merely passive investor – “to be flat-out unacceptable to one or both of the parties”.
“When that does happen, however, you probably have a stalemate – and in the CFIUS context, a stalemate generally means the companies lose and need to either abandon the deal or face a presidential prohibition,” said the former acting chief of the foreign investment review section at the Department of Justice.
Last year, almost one quarter of the joint voluntary notices filed with CFIUS were withdrawn and refiled, which restarts the clock, Plotinsky said. That often happens when the committee and merging companies cannot agree on mitigation measures but there is a hope that approval will be granted if negotiations are extended, he added.
While CFIUS scrutiny is increasing, the vast majority of deals continue to receive approval, Plotinsky said. While there have been some headlines about abandoned tie-ups, there were no presidential prohibitions in 2021 and just nine deals were abandoned in the face of a threatened block, he said.
Plotinsky noted that the number of deals involving a Chinese buyer that CFIUS reviewed rose sharply from 17 in 2020 to 44 in 2021. It is “probably reasonable to assume that those cases account for a decent chunk of the transactions that don’t clear CFIUS”, he added.
Despite CFIUS becoming increasingly aggressive, companies have so far accepted the outcome and not challenged the committee in court, Plotinsky said. “Eventually we may see CFIUS block a transaction based on a national security risk assessment so conservative that a company decides to litigate,” he predicted.
“In other regulatory contexts, litigation challenges are quite common,” Plotinsky said. But aside from a single due process challenge almost 10 years ago, CFIUS has avoided judicial reviews of its substantive determinations, he said.
