WuXi PharmaTech, the Chinese contract research, development and manufacturing company whose US share price more than tripled on the back of an initial public offering (IPO) in New York last August, has postponed plans for a follow-on public offering of 10,126,800 American Depositary Shares (ADSs).

“In light of market conditions and the current trading price for our ADSs, our board has determined it is in the best interest of our shareholders to postpone the offering,” stated chairman and chief executive officer Dr Ge Li. More than half of the American Depositary Shares in the proposed offering come from WuXi’s own shareholders.

The Chinese company intended to use around US$33.0 million of the expected proceeds to expand its 220,000 sq ft current Good Manufacturing Practices plant in Jinshan District, Shanghai. Up to US$37.0 million had been earmarked for the construction of a preclinical drug safety evaluation centre in Suzhou, China.

WuXi’s products and services range from laboratory services, such as discovery chemistry, service biology, pharmaceutical development and process development, through to manufacturing of advanced intermediates and active pharmaceutical ingredients.

Following the company’s spectacular IPO debut in the US last year, WuXi’s share price has lapsed substantially from the peak of around US$46 it hit in October 2007. Before the preliminary prospectus for the secondary public offering went to the US Securities and Exchange Commission, the last reported sale price for WuXi’s American Depositary Shares was $23.45 per ADS. More recently they have been trading at around US$19.

Last month the dynamism and international ambitions of China’s contract research industry were again in evidence as Beijing-based Venturepharm Laboratories, a leading provider of pharmaceutical discovery and development services, took a 39% stake in US research and development services company Commonwealth Biotechnologies.

But WuXi’s decision to hold fire on its follow-on offering suggests that leveraging the Chinese boom in R&D outsourcing into international markets will not all be plain sailing, particularly given the much higher cost base in established markets for preclinical and clinical testing.

Speaking recently at the 29th Annual Conference of the Institute of Clinical Research in Birmingham, UK, Keiko Oishi, senior managing director of Japanese contract research organisation (CRO) CMIC, cited data from the Japan Pharmaceutical Manufacturers Association on the comparative costs of running a hypothetical clinical trial for mild-to-moderate hypertension in Asian countries.

Taking Japan as a base of 1, the total cost of conducting such a trial in China (including CRO costs, facilities, investigators, etc) was estimated at 0.22, Oishi noted.

Another possible damper is that general perceptions of quality control in the Chinese pharmaceutical industry have been further dented by the involvement of a local facility in the contaminated heparin sold by Baxter, which has been linked to serious adverse reactions and deaths in the US.

Some analysts have questioned the wisdom of WuXi’s move on AppTec Laboratory Services last January. WuXi paid around US$151 million for the Minnesota-based supplier of laboratory testing, contract R&D and manufacturing services – roughly 2.1 times the US company’s revenues. WuXi also assumed AppTec debt of about US$11.7 million.