Chinese contract research organisation (CRO) WuXi PharmaTech is shedding the US biologics manufacturing capabilities it acquired with AppTec Laboratory Services last January.

Instead, the WuXi AppTec facility in Philadelphia will focus on the CRO’s “expanding” biologics testing, cell banking and cell therapy services, it said. Biologics manufacturing will cease as of 31 December 2008 and about 100 jobs will go at the facility, some of them through employee attrition. From 2009 onwards, WuXi expects to realise annual cost savings of around US$10 million from the pull-out.

The decision reflects the problems small biotechnology customers have raising finance in the current economic climate to move forward with early-stage product development. Announcing its third-quarter results recently, WuXi lowered its net revenue guidance for 2008, citing “cancelled or delayed projects from small biotechnology customers”.

The AppTec subsidiary as a whole was already performing below expectations in the first quarter of the year. At the time, WuXi said its group margin for manufacturing services had been dented by low utilisation in the biologics manufacturing facility, adding: “Looking forward, we expect the utilisation rate to improve in later quarters”.

Dr Ge Li, chairman and chief executive officer of WuXi PharmaTech, explained that the CRO had acted “to mitigate operating risks” in biologics production. Forecast revenues from this segment would make up less than 4% of total revenues projected for 2008, WuXi noted.

The withdrawal is likely to entail cash restructuring charges of US$2.5 million to US$3.5 million, payable over the next few months and comprising mainly severance and other employee-related charges. As yet undetermined are associated non-cash charges for impairment of certain fixed and intangible assets, including goodwill.

WuXi stressed that its biologics testing and laboratory services continued to attract strong demand and that its biologics testing, cell banking and cell therapy business in Philadelphia, as well as its US operations in St Paul and Atlanta, would be unaffected by the retreat from biologics production for clinical trials.

WuXi completed the acquisition of AppTec, a US supplier of laboratory testing, contract R&D and manufacturing services, on 31 January. The Chinese company’s US-based operations contributed US$11.0 million during the remaining two months of the first quarter but since then WuXi has not broken out the AppTec results.