In an indication of China’s growing clout as a base for contract research, Shanghai-based WuXi PhamaTech has moved into the US market with a definitive agreement to acquire AppTec Laboratory Services for around $151 million.

WuXi, whose stock market value in the US has more than doubled since it launched a $185 million initial public offering in New York last August, will also assume AppTec debt of around $11.7 million. Based in St, Paul, Minnesota, AppTec provides testing, contract research and development (R&D) and current good manufacturing practice (cGMP)-standard production services to the biopharmaceutical and medical device industries.

Describing itself as “China’s premier provider of pharmaceutical R&D outsourcing services”, WuXi says the acquisition will enable it to offer a full set of outsourced chemistry and biology services to global pharmaceutical, biotechnology and medical device clients. It provides immediate access to biologics capabilities and a “significant US operational footprint”, as well as expanding WuXi’s customer base and addressable market size.

AppTec’s established customer relationships with a number of leading pharmaceutical, biotechnology and medical device companies in the US and worldwide will supplement WuXi’s existing client base, which last year extended to 80 companies, including nine of the world’s top 10 pharmaceutical players by revenue. Also part of the package are AppTec’s state-of-the-art, FDA-registered US facilities in St. Paul, Atlanta and Philadelphia.

The acquisition price is around 2.1 times AppTec’s revenues for 2007, which are expected to be in the range of $70-$72 million. Including this projection, AppTec will have shown compound annual growth in revenues of around 46% since 2004.

Founded only in 2000, WuXi PharmaTech has built up “a broad and integrated portfolio of laboratory and research manufacturing services throughout the drug discovery and development process”. Chairman and chief executive officer Dr. Ge Li characterised the deal with AppTec as “an important milestone in realising our vision of becoming the global R&D outsourcing leader”. WuXi’s chemistry services will be complemented by AppTec’s biologics testing and manufacturing capabilities to create “a fully integrated service platform, from which we will be able to provide more value-added services to our customers”, he added.

The transaction, which has been approved by the AppTec and WuXi boards as well as AppTec’s shareholders (no consent is required from WuXi’s shareholders), is expected to close, subject to the usual conditions, in the first quarter of 2008. It will be immediately accretive to the Chinese company’s earnings per share, excluding amortisation of acquired intangibles and one-time charges related to the deal, WuXi notes.

China rising
WuXi’s rapid growth and ability to tap into markets outside China testifies to the country’s increasing attractiveness as a location for outsourced R&D, as pharmaceutical companies in more established markets scramble to cut costs and to reinvigorate their discovery efforts and product pipelines. According to a Bloomberg report citing data from the Boston Consulting Group, research personnel and supplies can cost 60% less in China than in the US, while Ernst & Young estimates the cost of a two-month primate study in China at around $20,000, one tenth as much as in the US.

A recent report on outsourcing clinical trials by US-based Arrowhead Publishers put China at the top of a location attractiveness index that ranked 31 “ascending” markets for clinical development according to seven measures of attractiveness such as study costs, population/patients and disease incidence. China scored an average index of 6.48 while India was in second place with an average of 5.66. Figures from, the on-line registry established by the US National Institutes of Health in 1997, suggest that China is pulling ahead of India as a preferred location for outsourced clinical trials.

A number of multinationals such as Eli Lilly, Sanofi-Aventis, AstraZeneca, Novartis and GlaxoSmithKline have stepped up their commitment to research and development in China. Among the reasons cited are a solid medical infrastructure, a large and often treatment-naïve patient population, a national drive for innovation and an improved intellectual property regime.

Last month, US-based MPI Research gave a vote of confidence to China’s early development capabilities when it announced a joint venture with Shanghai Medicilon to set up a 50,000sq ft preclinical testing facility in Shanghai’s Chuansha Economic Park. The new company, Medicilon-MPI Preclinical Research (Shanghai) LLC, is expected to be fully operational by 2009, offering preclinical services to US Good Laboratory Practice (GLP) standards.