China's WuXi to acquire AppTec

A major Chinese pharmaceutical services company is acquiring St. Paul-based AppTec Laboratory Services Inc. for $162.7 million in cash and debt.

WuXi PharmaTech Incorporated's purchase of AppTec is the largest Chinese takeover of a U.S. company since Lenovo Group bought IBM Corporation's personal computers business for $1.75 billion in 2004.

It is unclear what the acquisition means for AppTec's 400 workers. A WuXi spokesman declined to comment. AppTec CEO Bonnie Baskin was unavailable for comment.

The deal reflects the growing clout of Chinese firms like WuXi as U.S. pharmaceutical companies increasingly outsource drug design and production to foreign firms, especially in Asia.

Hoping to cut costs and speed delivery of new products, big pharmaceutical companies like Pfizer hire WuXi to research, test and manufacture drugs.

By agreeing to pay AppTec's investors $151 million and assume $11.7 million in debt, WuXi is in effect using most of the $185 million it raised from its initial public offering in August to buy a high-flying local start-up with sales of $70 million last year.

AppTec provides testing, research and manufacturing services for pharmaceutical and medical device firms. Baskin launched AppTec in 2001 after selling the infectious-disease testing business of ViroMed, an earlier company she had founded. Backed by local venture capital powerhouses Thomas, McNerney & Partners and Affinity Capital, AppTec expanded quickly, opening a $28 million manufacturing facility in Philadelphia and growing sales by 46 percent a year.

AppTec's technical know-how and strong customer relationships in the United States will prove especially useful to WuXi, Gulbrandson said.

In a statement, WuXi's chief executive, Ge Li, said the acquisition is "an important milestone in realizing our vision of becoming the global R&D outsourcing leader."

During the past several years, major pharmaceutical companies like Merck and Eli Lilly have focused on marketing drugs to doctors and hospitals while outsourcing costlier jobs like R&D, clinical testing and manufacturing to outside firms. With its cheaper labor pool, Asia, and China in particular, has emerged as the preferred destination for the U.S. drug industry.

"Asia is poised to be the largest pharmaceutical producer in the world," according to a recent report by PricewaterhouseCoopers. "The rising costs of drug discovery have led pharmaceutical companies to look outside the U.S. for a comparable workforce that is less expensive. Asia has become a primary manufacturing option, provider lower-cost and typically high quality products."

At the same time, the report notes, American consumers are wary of foreign-made drugs. A separate PricewaterhouseCoopers consumer survey ranked India and China as last and second to last, respectively, out of 10 countries for drug safety.