Charles River Labs Enters CRO Joint Venture With Shanghai BioExplorer

| About: Charles River (CRL)

Charles River Laboratories (NYSE:CRL) will begin operating in China, establishing a joint venture with Shanghai BioExplorer Co., Ltd, a Shanghai company that, like Charles River, provides pre-clinical CRO (Contract Research Organization) services. As one of the top two U.S. CROs, the menu of Charles River offerings are somewhat larger than BioExplorer's, although these will be expanded to meet the stated goal of supporting its customers’ needs, from drug discovery through proof of concept on a global basis.

The Chinese enterprise will be known as Charles River Laboratories Preclinical Services – China. Charles River, which will be the majority owner, will build a 50,000 square feet preclinical services facility in Shanghai. The new plant is scheduled to open in mid-2008.

BioExplorer was founded in 2002, and currently operates a 15,000 square foot facility in Zhangjiang Hi-Tech Park in Shanghai, next door to the ChinaBio™ offices. In a recent meeting of industry executives, Kewen Jin, PhD, BioExplorer's co-founder and CEO, described the relationship with Charles River as an acquisition of BioExplorer.

Dr. Jin is somewhat of a celebrity in the burgeoning Zhangjiang biotech community. A frequent speaker at conferences here, he is considered to be the quintessential Hai Gui - a returnee to China from the U.S., or "sea turtle." Formerly an international marketing, business development, and operations executive at Wyeth (WYE) and American Home Products (OTC:AHOM), Dr. Jin was trained in medicine at the Shanghai Second Medical University, and received his PhD in molecular biology at Rockefeller University and studied finance at Columbia University.
Contract Research Organization
In order to meet the high demands of their U.S. customers, there is a growing trend for China-based CROs to attempt to meet and exceed U.S.-level quality and ethics requirements. The new Charles River facilities in Shanghai will support GLP and non-GLP toxicology studies, which will meet the FDA standards for quality as well as Charles River’s own animal welfare policies. Charles River will also use its own animal research models and SOPs in China.

In announcing the move, Charles River reinforced China’s growing importance in early-stage drug discovery. According to a report published by the UK Trade and Investment Department, Phase I trials can be conducted in China for around 15% of the cost incurred in a Western country, and Phase II studies cost 20% of the price in the west. Also studies can usually be completed much more quickly in China than in the west, due in large part to the readily available patient population and rapid recruitment.

This is the first of what we believe will be a strong trend toward industry consolidation in China CROs. General consensus is that there are over 1,000 pre-clinical CROs in China, most of which are very small. Those that have strong operations and leadership will acquire others and/or be acquired by major player like Charles River, Covance (NYSE:CVD), Quintiles and others, while the remainder will be left to die on the vine.

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Disclosure: none.