* Declines to give financial terms
* Analyst says deal may be worth 500 mln euros
* Part of Bayer's goal to become No. 1 in over-the-counter
* Dihon has 123 mln euros in annual sales
By Ludwig Burger
FRANKFURT, Feb 27 Bayer said it would
buy privately held Dihon Pharmaceutical Group Co, a maker of
traditional herbal Chinese medicines (TCM), as the German
drugmaker pushes to become the world's largest non-prescription
With China's healthcare spending forecast to nearly triple
to $1 trillion by 2020 from $357 billion in 2011, according to
consulting firm McKinsey, the country is a magnet for makers of
medicines and medical equipment, but many patients remain
strongly attached to traditional approaches.
"What's growing the most within Chinese healthcare is
traditional medicine. It's a strong part of their culture," said
Lilian Montero, a healthcare analyst at Swiss bank Julius Baer.
"Local companies tend to show superior growth in emerging
markets. It's a good move from that point of view."
Dihon has about 2,400 employees and generated sales of 123
million euros ($168 million) in 2013, Bayer said on Thursday.
It declined to provide the financial terms of the deal but
brokerage M.M. Warburg estimated it was worth about 500 million
euros ($680 million).
Even though TCM is winning a following in some urban
communities in the West, Bayer said it was too early to say
whether Dihon products would be exported to Germany or Europe.
"It's less likely that these products will move to the
West," said Julius Baer's Montero. "You would need a lot more
medical training and education, otherwise it will stay a niche
market like homeopathy."
Dihon's products include dandruff treatments, antifungal
creams and medicine against gynaecological conditions such as
The deal, which could help Bayer challenge Johnson & Johnson
to the No. 1 spot in the over-the-counter (OTC) market,
underscores its push into herbal medicine after it bought
smaller German supplier Steigerwald last year.
The fragmented OTC market is gearing up for more
consolidation, with Merck & Co Inc's consumer healthcare
business drawing interest from Bayer and Novartis
China is of particular focus for deal-hungry international
healthcare firms. Pharmacy chain Alliance Boots plans to take a
12 percent stake in distributor Nanjing Pharmaceutical Co Ltd
, while Medtronic Inc purchased China Kanghui
Holdings in 2012.
But doing business in the world's most populous country is
not without risk. China's regulators have been investigating
several foreign and domestic drug companies on suspicion of
bribery, with the most high-profile investigation involving
The country's consumer health and wellness market is expect
to hit almost $70 billion by 2020 as increasing numbers of
consumers turn to health supplements and OTC health treatments,
according to a recent report from Boston Consulting Group.
The OTC market alone was worth $18 billion and is estimated
to grow at a rate of around 8 percent per year, the report said.
The Dihon deal is to close in the second half of 2014, Bayer