WuXi Partners with Covance on Contract Research Services in China

WuXi PharmaTech (WX) and Covance Inc. (CVD) signed a Memorandum of Understanding that will create a new joint venture to provide preclinical contract research services in China.

WuXi will contribute its new Suzhou lab, currently under construction, and Covance will invest $30 million into the JV. The new facility began construction on September 29, 2007, and it is expected to be on line in 2009. It will offer GLP toxicology, drug metabolism and bioanalytical chemistry services. These are later-stage capabilities than the services on which WuXi built its strong reputation. All of the services are fully compliant with FDA standards, as befits WuXi’s general business plan. The government of Suzhou made a contribution to the building of the facility, though details of the incentive were not provided.

Last year, when WuXi announced the beginning of construction, its intention seemed to be that it would run the Suzhou lab itself. WuXi made a high-level hire in the person of Dr. Lijie Fu, and it said that the company was already offering the services from a temporary lab located in Suzhou. At the time, WuXi estimated the cost of construction of its Suzhou facility at $40 million.

This is the second move this year in which WuXi has showed greater flexibility in its business plan by moving away from its initial strategy of building its CRO business by itself. In early 2008, WuXi announced that it would expand by buying US-based AppTec, which added a US base and experience with medical devices and biologics to WuXi.

Covance has revenues of $1.5 billion per year from its international CRO business, so it has the potential to throw a lot of business into the new JV. Covance operates in 20 countries and has a staff of almost 9,000. Covance opened a central lab facility in Shanghai in 2007 to support clinical trials.

Dr. Ge Li, Chairman and CEO of WuXi, said in a statement, “The partnership is important to our mission of building a global R&D outsourcing service platform….”

The financial and structural details of the JV will be disclosed once definitive terms are established and the entity is officially formed later this year.

The news had a positive impact on WuXi’s stock price. In early trading, following the announcement, WuXi moved $2.14 higher to $19.97, a gain of 12%.

Disclosure: none.

Comments

[Niksurfs]

I would not be surprised to see Covance buy WX sometime in the future, especially at this PPS.