WuXi Pharma sees no exit via Charles River

Sources confirmed that Fidelity Asia Ventures, and possibly other VC healthcare investors, are major stakeholders in WuXi Pharma. Fidelity originally invested in WuXi in 2003-04, seeing the company as a particularly strong example of the growing CRO (contract research organization) space in China, where costs for clinical trials and drug development work are lower than in the West, and regulations less burdensome.

Fidelity classed its WuXi investment as a "home run." The company claimed a 300% revenue increase over the period 2005-08. WuXi moved into the US market, listed on the NYSE in 2007 and purchased US biologics and medical device testing company AppTec in 2008 for $151 million, forming its operating subsidiary WuXi AppTec. However, according to AVCJ sources, Fidelity is no longer actively participating in the management of the business.

Charles River sought to acquire all the outstanding shares of WuXi through a variety of arrangements. However, investors cited the high acquisition cost – a 28% premium over the target's then market price – and potential execution and integration risks, as grounds for their objection. The original deal announcement caused Charles River's shares to drop by some 14.5%.

WuXi will receive a $30 million break fee from Charles River. The deal, originally announced in April, would have given Charles River a major footprint in the China market with lower-cost facilities for its drug development work, as well as creating one of the world's largest contract drug research companies. However, Jana, a 7% stakeholder in Charles River, pointed out that the company had not done well at integrating previous acquisitions, and complained at an "unreasonable price." Furthermore, with the company's stock still down post the termination announcement, investors may push for further action, including senior management changes or even a breakup of the group.

The deal also raises the question of how much Western strategic acquirers should pay for China growth, even in the white-hot healthcare space. In WuXi's case, certainly, the situation is complicated by the fact that the company does not target the domestic market, but explicitly positions itself as a lower-cost, high-quality service partner for international drug companies. However, it still appears to be performing well. WuXi's 2Q10 results showed 21% y-o-y revenue growth.

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• Topics
• Healthcare
• Exits
• Greater China
• North America
• FIL Capital Management / Fidelity Asia Ventures