When ArQule stopped doing chemistry work for drug companies in 2006 in order to focus on discovering its own drugs, the chemical synthesis and library services business did not die. ArQule executives who had developed the company's chemistry technology platform bought the business, including all of its lab instrumentation, and moved it from Woburn, Mass., to Shanghai.
The executives formed a new company, Alputon, that aims to offer a much wider range of drug discovery services than the compound library synthesis that ArQule had been providing. The service offerings will eventually include medicinal chemistry, biology, toxicology, and process chemistry.
Alputon started operations last August, and its chemistry labs, featuring all of ArQule's expensive parallel synthesis instruments, are already well equipped. Over the years, ArQule spent tens of millions of dollars developing its parallel synthesis systems, and the business generated about $300 million in sales over a decade. The company's biggest customer was Pfizer.
"We're not starting out small," says Libing Yu, Alputon's chief executive officer. Yu spent 10 years at ArQule, five of them as the director of chemistry. "We can operate on a large scale, and we have high-caliber people who are experienced with R&D collaborations."
A chemist who obtained a Ph.D. at the Shanghai Institute of Organic Chemistry, Yu sees himself as capable of leading, inspiring, and training scientists. When ArQule announced plans to sell its chemistry business, he says, several parties were interested. But the business had value only for someone who really knew how to operate it—someone like him. The other potential buyers dropped out and he acquired it with cofounder Ying Kan.
So far, Yu's new firm employs 80 people, 60 of them chemists. It is in Shanghai's Zhangjiang Hi-Tech Park, the city's main hub for high-technology businesses. Besides Kan, who also was a scientist at ArQule, another Alputon leader is Daniel Chen, a medicinal chemist who earned a Ph.D. at Columbia University. For nine years, Chen worked at Bristol-Myers Squibb where he was a senior research investigator specializing in rheumatoid arthritis and anti-inflammation targets. He now heads chemistry at Alputon. The firm's other staffers are largely local hires.
"Most of the other contract organizations in China are relatively low-tech," Chen says. "With our equipment, we can generate 200,000 compounds per year." Alputon's unique parallel synthesis technology uses robots controlled by ArQule-developed software. The technology automates the molecular assembly process and can start delivering hundreds of compounds within a few days. He says the robots reduce the risk of human error that can slow down projects.
According to Chen, Alputon's chemistry business would not have been competitive if it had continued to operate in the U.S. Indeed, starting in 2005, Pfizer ended compound library agreements with three U.S. firms—ArQule, Tripos, and Discovery Partners International—causing upheaval at all three.
Chen explains that customers are now ordering smaller libraries than they did a few years ago, "but you need the same amount of people to set up the synthesis method." It's cheaper to operate in China because the chemists needed to develop methods are paid less than in the U.S., he says. Moreover, even though Zhangjiang is considered an expensive base of operations in China, rents there are still about a third of what they typically are in the U.S.
Alputon's labs are surprisingly pleasant and well decorated, considering the cost constraints faced by drug discovery services companies. Yu says Alputon can afford to be less sensitive about its overhead because it is more productive than most chemistry services providers in China. And besides, employees are less likely to jump to a competitor if they work in a pleasant environment. Lower employee turnover, he adds, means less chance that customers' intellectual property will leak out.
Within a year, as Alputon ramps up its biology services, Yu expects its staff to surge to about 200 people. By then, the firm hopes to have many of the capabilities of a drug discovery company in place. But Yu says Alputon will not try to develop its own drugs.
"It's a painful process to start from chemistry and to become a drug discovery company," he says, speaking from experience. He believes ArQule turned to discovering its own drugs largely because the firm was finding it difficult to successfully operate a drug discovery services business in the U.S.
In contrast, he says Alputon has a bright future as a Chinese provider of discovery services. "Big pharmaceutical companies are not interested in investing in the development of drug discovery platforms," Yu says. "They want cost-efficient companies like us to do it."