WuXi Shuts Down Manufacturing Operation as Economy Hits Small Pharmas
WuXi PharmaTech (WX) announced it will discontinue its U.S.-based biologics manufacturing business, which is currently operating out of its Philadelphia facility. The operation was part of WuXi’s controversial AppTec acquisition, completed earlier this year.
In a conference call, WuXi management said the dynamics of the business have changed dramatically in the last three to six months. Small biologic pharmas, who were the only clients of the service, are facing critical funding problems because of the worldwide economic slowdown. As a result, many of them are not moving forward with the small-scale manufacturing of drug candidates for clinical trials. The client base for biologic manufacturing comprised just 20 small biotechs.
Big pharma and large biotechs have the ability to manufacture small amounts of biologic drugs in-house. They were not the clients for this service. On the other hand, WuXi said that its client base for biologics testing is much larger, totaling about 200 companies including the big players. This business has not seen the same level of disruption as manufacturing, according to WuXi.
WuXi also declared that it has no plans – at this moment – to return to the manufacturing business. Long-term, however, is a different matter, and the company declared itself open to the prospect of starting up its biologics manufacturing business sometime in the future, if conditions change.
WuXi said the manufacturing business will produce only 4% of its annual revenues in 2008 – about $10 million. And the company clearly stated the revenue trend is downward. $10 million is also the direct cost of running the business, but WuXi will make a more exact statement of the full costs of the segment at a later date. The company predicted the shutdown will have a positive effect on 2009 gross profit and eps numbers.
After closing the manufacturing capability, the Philadelphia facility will expand its biologics testing, cell banking and cell therapy services. About 100 biologics manufacturing and support personnel will be let go, causing a one-time charge of $2.5 to $3.5 million. At a later date, WuXi will announce a non-cash write down of goodwill, intangibles and manufacturing equipment related to the discontinuation.
Disclosure: none.
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