Online Exclusives

Bringing it back to the States

By Joanna Cosgrove | January 17, 2008

Does WuXi's acquisition of AppTec signal contract manufacturing's return to the US?

Bringing it back to the States

Does WuXi's acquisition of AppTec signal contract manufacturing's return to the US?

By Joanna Cosgrove

In a time when it's commonplace for companies to outsource many aspects of their manufacturing tasks overseas to Asia or India, a recent move buy an overseas outsourcer has put an interesting twist on the current trend. Headquartered in Shanghai, WuXi Pharmatec is a leading China-based pharmaceutical and biotechnology R&D outsourcing company. At the turn of the new year, WuXi announced it would acquire St. Paul, MN-based AppTec Laboratory Services, Inc., a 20+ year service provider of high-value testing, contract R&D and cGMP manufacturing services to the biopharmaceutical and medical device industries.

AppTec's fully integrated approach to the development of highly regulated products such as biopharmaceuticals, traditional pharmaceuticals, cellular therapeutics, medical devices and combination and tissue-based products, coupled with its three FDA registered facilities located in St. Paul, Philadelphia, PA, and Atlanta, GA, will furnish WuXi with established customer relationships with leading pharmaceutical, biotech and medical device companies in the US and around the world. AppTec's full year 2007 revenue was expected to range between $70 and $72 million. Since 2004 and including the expected revenue for 2007, AppTec will have achieved a compounded annual revenue growth rate of approximately 46%.

The combined business operations of WuXi PharmaTech and AppTec in both the US and China will enable WuXi PharmaTech to provide a full service suite of outsourced chemistry and biology services to global pharmaceutical, biotechnology and medical device clients. The acquisition is believed to total approximately $151 million and the assumption of debt held by AppTec totaling approximately $11.7 million.

According to WuXi, the rationale behind the acquisition was consistent with the company's long-standing growth strategy focused on building capabilities and capacity to drive future growth and complement organic growth with selective partnerships and acquisitions. "This acquisition," said Hai Mi, Ph.D., vice president, corporate communications for WuXi PharmaTech, "would allow WuXi PharmaTech to immediately obtain biologics capabilities and expertise, gain a significant US operational footprint and expand our US customer base and addressable market size."

Dr. Mi went on to say that the combination of WuXi PharmaTech and AppTec will "bring together complementary service offerings and expertise to create a broad platform covering both chemistry and biologics which will allow the combined company to provide more value-added services to our customers in the pharmaceutical, biotechnology and medical device industries."  

When asked about how this acquisition might juxtapose the mindset that China – not the US - is globally considered to be a cost-effective outsourcing destination for manufacturing operations, Dr. Mi replied: "We believe the true benefit of outsourcing (a better word in my personal view is global collaboration or networking) does not come from labor cost arbitrage, but rather from the ability to get more and better drug candidates in a more cost effective and efficient way. This in return will improve the success rate of drug R&D and ultimately save a lot of money for the pharma, biotech and medical device companies."

Dr. Mi also added that as a market pioneer and leader in the pharmaceutical outsourcing industry, WuXi PharmaTech has built its reputation as a top-quality service provider by offering a strong suite of chemistry based services and leveraging the benefits of China's vast talent pool. "With an expanded geographic footprint, and a broader and deeper scope of services, we continue on our mission to transform the global drug R&D model," he said. "By providing a fully-integrated platform with best-in-class capabilities that span the entire R&D chain covering both small and large molecules, we can continue to develop and maintain long-term strategic partnerships with big pharmas, biotech companies and medical device companies.

"Upon completion of this acquisition, WuXi PharmaTech will have further transformed the outsourcing R&D service model and will have established a more comprehensive service platform that better addresses our clients' growing needs," he concluded.

"I think the key point to remember is that WuXi PharmaTech sees itself as a global player in drug development services, not as a Chinese company," observed Jim Miller, president of PharmSource, a Fairfax, VA-based provider of market intelligence on the pharmaceutical contract research and manufacturing industry. "They see their value being in their expertise and capabilities and a highly responsive business model, not in low wages. It is interesting to note that the it is WuXi and some of the major Indian companies like Nicholas Piramal, Jubilant Organosys and Dishman who see the industry in global terms while most Western companies have been slow to respond to this trend (Lonza and Albany Molecular being noted exceptions)."

The transaction has already been approved by the AppTec and WuXi PharmaTech boards of directors and AppTec's shareholders, and is expected to close, subject to regulatory and other customary closing conditions, in the first quarter of 2008. No approval by WuXi PharmaTech's shareholders is required. AppTec will be integrated into WuXi PharmaTech and continue its operations as usual with no disruption to its customer service. In an effort to provide continuity of services across both WuXi PharmaTech and AppTec divisions and because AppTec's services are complementary to those of WuXi PharmaTech, most of the existing AppTec operation, personnel, reporting structure and compensation systems will remain unchanged.

Joanna Cosgrove is the online editor for Contract Pharma.