Recruiting in China

BEIJING — Charles River Laboratories International Inc., a U.S. medical research equipment and services company, said Friday it is canceling a $1.6 billion acquisition of WuXi PharmaTech after shareholder objections.

Charles River's announcement of the planned purchase in April came amid a rush by foreign drug companies to expand research and development operations in China.

But Charles River shareholders objected to the deal's price and strategic value.

"Given their concerns about the proposed transaction, and our commitment not to proceed without their support, we have decided that terminating the transaction is the appropriate action to take," said Charles River's chairman, James C. Foster, in a statement.

The company, based in Wilmington, Massachusetts, said it would pay WuXi PharmaTech a $30 million break fee.

The deal would have given Charles River drug-testing facilities in the Chinese cities of Shanghai, Suzhou and Tianjin.

Investment firm Jana Partners LLC, which owns a little more than 7 percent of Charles River's stock, urged shareholders to reject the takeover.

Jana Partners objected to the price and pointed to what it called Charles River's "poor track record" of integrating acquisitions.

Around the world over the past couple of years, the pharmaceuticals industry has been slashing jobs at a rapid rate, beset by expiring patents on important drugs and slowing growth in rich country markets.

The lost jobs have included sales representatives and back office staff, but also the once ring-fenced jobs in drug development, the lifeblood of the industry.

Against this somewhat grim backdrop, however, Shanghai has managed to cement its position as one of the drugs industry’s most important hubs for research and development.

Many of the industry’s premier companies, including Novartis, GlaxoSmithKline, Pfizer and AstraZeneca have opened new research facilities in the city and some of them are already looking to expand them.

Novartis, the Swiss group, said in November it planned to invest $1bn in its Shanghai laboratories, which would employ 1,000 people in five years’ time. Shanghai would become the third pillar in the company’s global R&D, alongside Basel and Boston.

Amid hype about corporate research moving to China and overinflated figures about how much real innovation is taking place in the country, the rapid emergence of pharmaceuticals research in Shanghai is a strong demonstration that the city can actually build a genuine corporate research base.

How has it managed to flourish while the industry as a whole is struggling?

The principal draws are the market and the pool of talented scientists.

While OECD healthcare markets are languishing and the industry is trying to come to terms with the impact of US healthcare reform, emerging markets are flourishing, none more so than China.

IMS, the consultancy, believes the country will see sales increase by 17 per cent this year.

Most companies are working on the assumption that China will be one of the three biggest markets in the industry in five years, alongside the US and Japan.

Although industry executives say there is no direct link between where research is conducted and sales in that country, there are plenty of subtle advantages to having labs in important markets – from currying favour with regulators to establishing links with the doctors and scientists who are leaders in their area.

AstraZeneca says that its research arm in Shanghai is mostly focused on trying to learn more about patients in China and the country’s medical needs.

When the company launched its Iressa drug for lung cancer seven years ago, it quickly found that Asian women who were non-smokers responded much more strongly than western patients. One of the genes that the drug targets appears to mutate much more frequently among Asian women, making the treatment more effective.

The initial focus of the facility has been to try to understand more about these differences, first in cancer and now in respiratory diseases.

“The Iressa case will not be an exception. It will happen again and again, so we are here to study the differences between patients in this part of the world,” says Zhang Xiaolin, head of AstraZeneca’s Shanghai research facility.

“All of this will have a profound effect on drug development and on the prospects for personalised medicine.”

The other driving force for drugs companies is the relatively untapped ranks of smart young Chinese scientists.

Novartis says this was the main reason for its decision significantly to expand its research arm in Shanghai. Six years ago, it moved the headquarters of its research operations from Basel to Cambridge, Massachusetts.

Daniel Vasella, chairman, says the experience in the US “taught us that you have to go where the talent is rather than getting the talent to come to you”.

The gap in the local talent pool is that, while there are plenty of excellent scientists, there are few people with extensive experience in drug development – an area that is still in its infancy in China.

That means that multinationals have needed to recruit a significant number of overseas Chinese from labs in the US and Europe to take leadership positions – something that nullifies much of the cost advantage there might be to conducting research in China.

At a time when the industry struggling elsewhere, there is no shortage of overseas Chinese scientists wanting to come back.

At first, it was quite hard work to lure back talented researchers, says Mr Zhang at AstraZeneca, but now there are no problems.

Because of the large number of drug research facilities established in Shanghai, there is also now a critical mass of suppliers of the instruments and chemicals that are vital for research.

There are some obstacles, however. Drug companies experience considerable problems shipping biological samples while the regulatory environment for early-stage clinical trials is also extremely complicated.

The purchase of China’s WuXi PharmaTech Inc. will give Charles River Laboratories International Inc. the ability to offer drug makers one-stop shopping for preclinical drug development and testing, executives of both companies said yesterday.

Charles River Labs, a drug testing contractor based in Wilmington, agreed to acquire Shanghai’s WuXi (pronounced who-shee) in a cash and stock deal valued at about $1.6 billion.

The alliance is a good fit because the two companies serve a similar client base of leading pharmaceutical and biotechnology companies in the United States and Europe but provide different services, said James C. Foster, chief executive of Charles River, who will lead the combined company.

While the Massachusetts company conducts animal tests for drug developers before clinical trials, its new Chinese partner, among other things, manufactures the primary ingredient in drugs — known in the industry as the API, or active pharmaceutical ingredient, the substance in drugs that is biologically active.

“We’re doing this because our clients, particularly large pharmaceutical and biotechnology companies, want to buy an increasing number of services from a smaller number of providers,’’ Foster said in an interview. “We want to be one of those providers.’’

Edward Hu, the WuXi chief operating officer who oversees US operations, said the deal will allow his company to expand faster, and serve a broader customer base, than it could have on its own.

“It creates a formidable company in the early development space,’’ Hu said in an interview, citing the ability to handle a range of services for clients, from designing molecules to safety and animal testing. “No other service provider has this capability today. This is going to reshape the pharmaceutical and biotechnology industry.’’

But investors apparently thought WuXi stockowners got the better part of the deal, which the boards of both companies have approved. Shares of Charles River tumbled $6.22 (15.6 percent) to $33.55 on the New York Stock Exchange yesterday, while WuXi shares vaulted $2.84 to $19.41, a 17.1 percent gain.

Charles River agreed to pay $21.25 a share for the Chinese company. That includes $11.25 in cash and $10 in Charles River common stock. The deal represents a more than 25 percent premium over WuXi’s closing stock price Friday. It is expected to be completed some time before the fourth quarter.

The merger reflects a consolidation trend among both drug makers and the companies that provide services to them.

Increasingly, many drug makers have been outsourcing development and testing services to contract research organizations, such as Charles River and WuXi, and focusing their own efforts on clinical trials and marketing. The outsourcing business, which allows drug makers to cut costs and increase their speed to market, has been growing by an estimated 30 percent annually.

“This is another way of reducing risk,’’ said Harry Glorikian, managing partner at Scientia Advisors, a Cambridge consulting firm that focuses on life sciences. “It’s less risky for large pharmas to outsource their drug development functions and become marketing shops pushing these drugs onto consumers. When you think about it, this is similar to Procter & Gamble or Dell outsourcing component design.’’

Under their definitive agreement, the combined company will retain the name Charles River Labs and its global headquarters in Wilmington. The Chinese operation will continue to be called WuXi and be run by its existing management team of mostly Chinese-born, US-educated executives.

WuXi was one of the companies visited by Governor Deval Patrick on a trade mission he led to China in 2007. The company currently serves about 20 customers from Massachusetts, including Vertex Pharmaceuticals Inc. of Cambridge.

While the deal helps to cement the role of China as low-cost venue for drug development, Charles River’s Foster said he expects operations in Wilmington will expand as the company grows. Charles River also plans to reopen in 2012 an animal testing site in Shrewsbury where it suspended operations early this year because of a slowdown in business from its customers in the Boston area, Foster said.

“Our footprint will get larger in Massachusetts,’’ he said.

Charles River, which had $1.2 billion in sales last year, employs about 8,000 workers worldwide, including more than 800 in Massachusetts. The company was founded by Foster’s father, veterinarian Henry Foster, in 1947. It went public on the Nasdaq exchange in 1968, and was purchased by medical technology company Bausch & Lomb in 1984.

A management group, led by James Foster, repurchased the company in 1999 through a leveraged buyout and took it public again in 2000, this time on the New York Stock Exchange.

WuXi, a 10-year-old company that posted revenue of $270 million last year, is the largest Chinese maker of chemical compounds for the pharmaceutical industry. It acquired three US research sites in 2008 when it bought Minnesota-based AppTec Laboratory Services Inc. WuXi employs about 4,000 workers worldwide.

Published: 29-Jan-2010

Sanofi-aventis has signed agreements with Minsheng Pharmaceutical to form a new consumer healthcare joint venture (JV). Sanofi-aventis will obtain a majority equity stake in the new entity. The agreements were signed in the presence of senior leaders of the Hangzhou municipal government.

The proposed Sanofi-aventis-Minsheng joint venture will primarily focus on vitamins and mineral supplements (VMS).

Recently, Sanofi-aventis had announced its planned acquisition of Chattem, a manufacturer and marketer of branded consumer healthcare products, toiletries and dietary supplements in the US.

Hanspeter Spek, president of global operations at Sanofi-aventis, said: “We are pleased to take a significant step toward establishing the new consumer healthcare joint venture with Minsheng, our long-standing partner. Combined with our leadership position in vaccines, we will continue to contribute to preventative healthcare in China. Entering the world’s second largest consumer healthcare market is also a strategic move for Sanofi-aventis to consolidate its position in consumer healthcare.”

Zhu Fujiang, chairman of Minsheng Pharmaceutical, said: “We are equally excited about the prospect of forming the new consumer healthcare joint venture with Sanofi-aventis, after more than ten years of successful partnership.Sanofi-aventis is an energetic and dynamic company. His success with pharmaceuticals and vaccines has demonstrated his strong marketing capability.

"We hope that once materialized, the new venture will revitalize our consumer healthcare business and expand the reach of our products to benefit more consumers. We also hope that the new venture will serve as a platform for us to develop more health products in order to contribute to the local economy and meet consumer needs.”

GlaxoSmithKline is poised to announce cuts of more than 3,000 jobs this week at its European and US operations as the focus shifts from stagnant Western markets to China, emerging Asia, and Latin America.

By Ambrose Evans-Pritchard
Published: 6:51PM GMT 31 Jan 2010

The retrenchment follows last week's move by AstraZeneca to slash 8,000 jobs in a five-year restructuring plan, on top of 12,600 cuts already made. The lay-offs at the UK's two largest drugs groups are a blow to one of the last surviving fortresses of British industry, responsible for a quarter of the world's top 100 medicines.

The cuts are a sign that the old strategy of relying on patents and selling "white pills to Western markets" has passed its time as generic drugs sweep global markets.

Glaxo aims to reduce £1.7bn in annual costs by the end of next year and re-focus efforts on research and development. The company has seen lower demand than expected for its Pandremix vaccine against H1N1 swine flu as the virus proved less deadly and contagious than feared at first, though it may yet come back to bite in a mutated form, as the similar Spanish flu virus did in 1919.
The vaccine has lifted sales by around £835m over the last three months but it has not proved a bonanza.

Sales of Glaxo's H1N1 drug Relenza have also fallen short as swine flu fears subside. Germany alone cut its order of Relenza by 30pc earlier this month, costing the company almost £120m in lost sales. France plans to cancel half its expected orders. Britain, Holland, Spain, and Belgium have all been in talks over reductions. In the end, many patients who did come down with the disease needed just one pill instead of two.

Analysts say the group is likely to announce a return to profit growth of around 12pc to £8.69bn at its full-year results on Thursday after an 11pc slip the year before.

The company has been hit by generic versions of its herpes treatment Valtrext after the recent expiry of its US patent, although it has the lupus drug Benlysta wating in the wings. Valtrex sales are expected to drop by two thirds this year to $782m, raising concerns that the group is too reliant on aging patents.

Andrew Witty, the chief executive, is trying to diversify away from its core pharmaceutical business in the West to consumer health, especially in China.

Tougher rules have made it harder to make money in Europe and America. The EU has passed swingeing codes that have pushed key research activities abroad.

The share of the world's clinical trials conducted in the UK fell from 6pc to 2pc between 2000 and 2006, largely due to intrusive regulations that have sharply raised costs.

By Jacob Goldstein

Same song, different verse: A big drug maker is cutting jobs in the developed world and growing in China.

This time, it’s Pfizer, which said today that it’s looking to increase its sales force in China to 3,200 by the end of next year, up from about 2,300, Dow Jones Newswires reported today. The company has said it will cut nearly 20,000 jobs as part of the Wyeth merger.

Eli Lilly said last fall that it would continue to hire in China, even as it cuts jobs in the U.S. and other developed markets. Novartis is also making a big push into China, hiring hundreds of workers and spending $1 billion to expand a research center in Shanghai.

With business tough in developed markets, drug makers are counting on the developing world for growth. But that’s not always a sure thing, either; just today, the WSJ reported that the Philippine government is asking drug makers to submit a list of proposed price cuts on their “top-selling and most expensive drugs.”

Last summer, the government in Manila put price controls on several drugs, including Pfizer’s Norvasc and Lipitor. Pfizer had previously offered to cut the prices on some of its drugs there, and said last year it was “disappointed” that the government didn’t accept its offer.