Medical research equipment and services company Charles River Laboratories International Inc. plans to buy WuXi PharmaTech, a Chinese pharmaceutical outsourcing company, for $1.6 billion.
Foreign drug companies have been rushing to expand research and development operations in fast-growing China, with much of the activity concentrated in the Shanghai region, where WuXi PharmaTech is located.
WuXi expanded its own international reach by acquiring AppTec Laboratory Services, a supplier of medical tests in St. Paul, Minnesota, for $163 million in 2008.
The combined company will be called Charles River Laboratories and will include a widened variety of products and services for drug research companies and institutions, the statement said.
WuXi's chairman and chief executive, Ge Li, will head China Services of the newly combined companies and become an executive vice president of Charles River. He said the deal would help WuXi improve its toxicology capabilities.
The deal calls for Charles River, which is based in Wilmington, Massachusetts, to pay $21.25 for each WuXi American Depository Share, which is a 28 percent premium over WuXi's closing price Friday of $16.57. Of the $21.25, about $10 will be in Charles River stock and the rest in cash, the two companies said in a statement.
In pre-opening trading Monday, WuXi shares rose $3.41, or 20.6 percent, to $19.98 while Charles River shares fell $1.77, or 4.5 percent, to $38.
The deal will be financed through a combination of cash and debt financing, Charles River said. It is subject to shareholder and regulatory approvals.
"The combination of WuXi and Charles River brings together two companies with a shared mission: to support and accelerate our clients' drug development efforts," James C. Foster, chairman of Charles River, said in the statement.
Charles River Labs also reported its first-quarter results Monday. The company said its profit dropped 32 percent because of falling demand from drugmakers, which have cut back on research as a way to cut costs during the economic slump.
In the quarter ended March 27, Charles River Labs said its profit declined to $17.4 million, or 26 cents per share, from $25.4 million, or 38 cents per share, a year ago.
It reported a profit of 45 cents per share excluding one-time costs.
Revenue fell 1 percent to $297.3 million from $301.5 million.
Analysts expected a profit of 47 cents per share and $296.8 million in revenue, according to Thomson Reuters.
Preclinical service revenue fell 11 percent to $125.1 million due to lower prices and less demand from pharmaceutical and biotechnology companies. Research models and service revenue rose 7 percent to $172.2 million due to acquisitions, and better sales of in vitro products.
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