Deal focus: Advent sees potential in hybrid CRO

WuXi AppTec has benefited from being an early mover in China's pharmaceutical R&D outsourcing space. Founded in 2000 by a team of four working out of a single laboratory, the company is now the runaway market leader. WuXi's $1.14 billion in revenue for 2017 was more than the combined total for the next four largest China-based players, according to the company's Hong Kong IPO prospectus.

BioDuro ranks itself as number four in the market which, based on the prospectus calculations, would put annual revenue from China operations in the $200-250 million range. However, the company has hybrid qualities that others might struggle to match.

Most sophisticated outsourcers have sought to become more integrated, combining contract research organization (CRO) and contract development and manufacturing organization (CDMO) functions. BioDuro brings an ingrained international approach as well. Founded in the US in 2005, the CRO services have been offered out of China from the outset, while San Diego is home to the CDMO operation.

"It is the most international of the companies we have seen, and that is a real competitive advantage because the customer base is mostly international," says Filippo de Vecchi, a managing director and co-head of Greater China at Advent International. "China is growing fast in pharma and biotech, but to date the larger part of the global market is in the US and Europe. Having a global management team and a strong local team is a good set-up."

These credentials helped convince Advent to acquire a controlling stake in the company for an undisclosed sum (although equity investments from its global fund are upwards of $100 million). The deal was conceived as a partnership with management and Bridgewest Group, which has transitioned from majority to minority owner.

In addition to being impressed by the company's positioning and management team, Advent was sold on the market opportunity. The Chinese pre-clinical CRO segment in which BioDuro operates – providing discovery and development services to biopharmaceutical manufacturers from initial target identification to manufacture of limited runs for clinical trials – is worth $2.5 billion a year. The portion of the US CDMO market it targets is estimated at $1 billion. Both are expected to see rapid growth.

The GP will finance the construction of a new research facility in China – there are already bases in Beijing and Shanghai – and increased capacity in San Diego. Two Advent operating partners will join the BioDuro board and help with global expansion. China is expected to feature strongly as it moves from fragmentation to consolidation. Despite its commanding position, WuXi AppTec only has an 8.3% market share.

"We have been pursuing healthcare services investments globally over the past decade and then in China specifically ever since we opened our Shanghai office in 2012," de Vecchi adds. "We have looked at many possible transactions, but we never really got comfortable with them. They didn't have all the ingredients we like to see in an Advent deal." That is, until now.

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• Topics
• Greater China
• North America
• Healthcare
• Buyouts
• China
• USA
• Advent International