AstraZeneca Plc agreed to acquire Chinese cell therapy developer Gracell Biotechnologies Inc. for as much as $1.2 billion as the British drug giant steps up efforts to tap pharma innovations from China’s burgeoning biotech industry.

The acquisition builds on a run of deals in China for AstraZeneca, one of the most active western drug-makers in that country. Many of its other recent moves, including a foray into the market for weight-loss drugs, have involved licensing agreements rather than outright purchases.

The latest deal, announced December 26, will enrich AstraZeneca’s pipeline with a so-called CAR-T therapy that modifies a patient’s own immune cells to fight cancer. The experimental medicine is a potential treatment for blood cancers such as multiple myeloma and auto-immune diseases like lupus. Its streamlined manufacturing process is intended to address some of the current challenges with CAR-T therapy.

AstraZeneca shares rose as much as 1.8% early December 27 as trading resumed after the Christmas break. For the year to date, they’re down about 6%.

Gracell Biotechnologies ADRs rose 60% to the highest level in more than two years.

China is Astra’s second-largest market after the U.S., and chief executive officer Pascal Soriot has previously said he’s keen to tap into the country’s medical innovation. China is running more clinical trials of CAR-T therapies than any other country — fertile ground for further developing the breakthrough therapies and identifying early-stage products.

Licensing Deal

Earlier in 2023, AstraZeneca reached an exclusive licensing deal with Chinese biotech KYM Biosciences Inc., giving the U.K. drugmaker the rights to develop and sell an experimental cancer treatment worldwide. 

Outright purchases of Chinese biotech firms by foreign companies have been less common than partnerships. 

“We believe that China is a very important country for us,” Soriot said in interview with Bloomberg TV earlier in 2023. “We also believe China has an important role to play in terms of sourcing innovation. There is an explosion of biotech companies in China.”

Astra will acquire Shanghai-based Gracell for $2 a share, amounting to an upfront cash payment of $1 billion. An additional contingent value right that is issued per share and tied to reaching certain regulatory milestones could push the deal value to $1.2 billion, the companies said in a statement December 26. 

“This transaction could be beneficial for both Gracell and AstraZeneca to expand developmental and potentially commercial capabilities in cell therapy,” Emily Bodnar, an analyst at HC Wainwright, wrote in a note to clients. Several of Gracell’s key technologies have generated encouraging proof-of-concept results in oncology and autoimmune diseases, she said. 

The news comes after Astra struck a deal in November with Chinese biotech Eccogene Inc. to co-develop a weight loss pill as it seeks to compete with Novo Nordisk A/S and Eli Lilly & Co., two companies that have led the industry’s gold rush for obesity drugs.

Justin Zelin, an analyst at BTIG, viewed the proposed transaction as favorable for shareholders of both companies. It bolsters AstraZeneca’s budding cell therapy capabilities and investments, and its growing interest in the multiple myeloma space, he wrote in a note to clients.

If Gracell meets the required regulatory milestones, Astra’s offer price — equivalent to $11.50 per American depositary share — represents an 86% premium to the company’s closing price on December 22 before the deal was announced. Gracell’s ADRs are up more than 331% in 2023.