Service Provider In "Arbitrage Opportunity Of The Century"
By Louis Garguilo, Chief Editor, Outsourced Pharma
Who makes up a “Chinese consortium” that crosses the Pacific to acquire a California biotech?
In a recent article for Life Science Leader magazine, I describe the acquisition of San Diego biotech Ambrx Inc., by a consortium of Chinese investors and partners. One of the four partners mentioned in that Ambrx deal – WuXi PharmaTech – is of particular interest to readers of Outsourced Pharma.
We all know WuXi as the Chinese CRO/CMO instrumental in setting off an offshore outsourcing spree by U.S. and European pharmaceutical companies some 15 years ago. Today, WuXi remains our industry’s face of outsourcing to China. So when this deal was announced in May, I was curious about WuXi’s role in “the arbitrage opportunity of the century,” as described in the Life Science Leader article by Tiecheng “Alex” Qiao, CEO of Ambrx.
The Arbitrage Opportunity Of The Century
Here’s how Qiao defines the scenario:
“This [era] is an arbitrage opportunity rarely experienced in human history. I mean ‘arbitrage’ in the expanded sense of capitalizing on the advantages – and disadvantages – in these [U.S. and China] economies and cultures. The key is that both sides benefit equally. There’s this insatiable hunger for technology in China, a large amount of available investment capital, and a huge emerging commercial market. Then you have the U.S., the world’s leader in entrepreneurism and in producing technology, with a need for more capital to continue to succeed in the largest and most competitive market in the world.”
Our specific interest then, is in how an outsourcing service provider fits into this worldview. WuXi PharmaTech Chairman and CEO, Dr. Ge Li, had this to say about the Ambrx deal: "We are pleased to join the Consortium to acquire Ambrx … This transaction will allow WuXi to broadly access Ambrx's best-in-class ADC platform and biologics development capabilities to better serve our global customers."
In other words, WuXi is backing one of its customers with capital, in return for a share of the developing technology ... and perhaps more. WuXi is also utilizing its connections throughout China to assist this U.S.-based company there, even as it helps Ambrex grow in San Diego – a firm commitment made by the consortium.
Ambrx’s Qiao commented, “Our relationship is no different than those other sponsors have with their CRO or CMO. We’ve been working with WuXi for the last two years.” Ambrx’s first clinical trial product – ARX788 – is a collaborative effort between Ambrx and WuXi, who is also the manufacturer of the clinical-trial material. ARX788 is an antibody drug conjugate (ADC) that targets HER2 over-expressing tumors, and is based on Ambrx’s “next-generation ADC technology.” (In pre-clinical models, ARX788 demonstrated an improved efficacy and safety profile relative to currently available HER2-targeting ADCs.)
Qiao says what should not be overlooked is the fact that over the past few years – when others were less inclined – WuXi continued to believe in the science and technology. It made the commitment to stick with Ambrx as a customer.
We now know WuXi’s Li has had a lot more on his mind during that time period, including perhaps once again re-defining the role of service provider in the biopharma industry. On August 14, it was announced that WuXi PharmaTech (Cayman) Inc. (NYSE: WX), entered into an agreement and merger plan with parent New WuXi Life Science Limited, and WuXi Merger Limited, the latter a wholly owned subsidiary of the parent company. In other words, WuXi is delisting from the U.S. stock market, and in a management-led, estimated $3.3 billion buyout, taking the new organization private.
Among other factors, this move to go private may provide WuXi more space to pursue other – as Qiao of Ambrex would say – innovative “arbitrage opportunities.” WuXi already has a growing presence in the U.S. Additionally, it continues to make announcements regarding global alliances, and also seems on track to complete what it calls the biggest biologics plant in China.
So it appears WuXi will continue as a leading Pacific purveyor, finding new ways to circulate and combine international capital, science and technology, and bring its now decades of experiences to the drug industry. This is doubly interesting to many of us because WuXi is pursuing all this from its base as an outsourcing service provider. Will other CROs/CMOs expand their roles and footprints in some similar fashions? I’ve noted – most recently at the Outsourced Pharma West San Diego conference – we may need to rethink and expand our definition of “service provider.”
The Rest of The Consortium
It’s also instructive for us to round out this article with a look at who the other three announced partners are in this deal for Ambrx. Here’s a short description of each:
Shanghai Fosun Pharmaceutical (Group) Co., Ltd., is the lead investor for the Ambrx merger and acquisition. Fosun Pharma is a healthcare company established in 1994, and listed on the Shanghai and Hong Kong Stock Exchanges. It covers the “healthcare industry value chain, including pharmaceutical manufacturing, distribution and retail, healthcare services, diagnostic products, and medical devices.” The company maintains a National Recognized Enterprise Technology Centre, and an international R&D team working in a variety of therapeutic areas. Its model for strategic development calls for more “organic growth, coupled with M&A and integration.”
Next, and as if to prove that Chinese investment doesn’t stop on the shores of the West Coast, the private equity firm named in the Ambrx deal, HOPU Investments, recently led a $200 million investment in Mevion Medical Systems of Littleton, Massachusetts. HOPU, with offices in Beijing, Hong Kong, and Singapore, brought together a number of new Chinese and existing U.S. partners to help Mevion accelerate global expansion of it’s advanced proton therapy systems. The deal includes the forming of a “joint venture in China to produce, sell and service proton therapy systems for the Chinese market.”
The fourth named member of the consortium is China Everbright Limited’s CEL Healthcare Fund, which trades on the Hong Kong stock exchange. CEL is a financial services enterprise managing “a series of private equity, venture-capital and sector-focused funds.” As we’d expect, it is active on both sides of the Pacific, providing services for investors to get into China, and seeking investment opportunities overseas. At the end of December 2014, total assets under management totaled $6.8 billion.
“This is just the tip of the investment wave,” says Qiao of Ambrx. “If you follow the biotech industry, you know another recent example is BGI and Complete Genomics.”
Complete Genomics has commercialized a DNA-sequencing platform for the human genome, and operates a commercial genome center in Mountain View, California. In 2013 it was acquired by BGI-Shenzhen (China), billed as the world’s largest genomics services company.
“I truly believe these deals represent the most interesting models – China capital and U.S. technology – for the coming decade,” says Qiao.