The rule of thumb in the pharmaceuticals industry is that it takes a decade to go “from molecule to market”. In fact, it often takes as long as 16 years and plenty of money is spent over that time, including on the 10,000 or so compounds that fail for each drug that becomes a success. In a rare acquisition of a Chinese company involved in research and development, Charles River Laboratories is buying Wuxi Pharma Tech for $1.6bn in cash and stock to capture a bigger slice of that expenditure.
The combined company will have sales of about $1.5bn, with four-fifths of this initially coming from the old Charles River. But Wuxi, which has seen revenue increase more than 10-fold since 2004, is likely to drive growth. More important, the combined company's services will now run the gamut from synthesising compounds at the discovery stage through preclinical and early clinical testing and even manufacturing of commercially successful compounds. A greater share of drug testing is moving to emerging markets, following the nearly complete offshoring of pharma ingredient manufacturing.
Investors panned the move on price, inflicting a 14 per cent fall on Charles River's shares in early trading. This seems unjustified. The move looks sensible, as it augments the company's existing expansion into China. Uncertainty over healthcare reform and a dearth of funding for biotechnology companies since the crisis have dented revenue recently. Thus Wuxi will provide a nice, if expensive, fillip.