Two of three Chinese contact research organisations (CROs) that recently formed an alliance offering a complete range of drug discovery and development services have now marked another first for the sector by agreeing to merge.

Under the letter of intent signed by Sundia MediTech (Shanghai) Company Ltd and Shanghai United PharmaTech Ltd, the two companies will become subsidiaries of Sundia Investment Group, the holding company based in the British Virgin Islands that currently owns Sundia MediTech. No financial details were disclosed.

The merger proposal was approved last week by the boards of directors of both companies and by Sundia shareholder International Data Group Venture Capital (IDG VG) at its partners’ meeting in Beijing. Dr Wang Xiaochuan, chief executive officer (CEO) of Sundia, will become chairman and CEO of the merged entity, while United PharmaTech CEO Dr Shi Xiongwei will assume the positions of director and executive vice-president. Senior managers from the two companies will combine to form the new management team.

Ties with CROSA

The announcement came just a couple of weeks after Sundia MediTech and United PharmaTech set up their Contract Research Organisation Service Alliance (CROSA) with a third Chinese CRO, HD BioSciences. The partners said at the time they would explore possibilities for co-operating even more closely in the future. While there are no plans at present to include HD Biosciences in the merger, Dr Wang said the new company would maintain all ties with its CROSA partner and honour all agreements made under the alliance.

According to Dr Wang, one rationale for the merger was the opportunity to combine technical expertise in different fields and help to move the new company to the forefront of China’s CRO industry.

Sundia’s current portfolio of services includes preparing intermediates and novel templates; synthesising novel chemical building blocks, medicinal ingredient sets and focused libraries; parallel library synthesis; structure-activity relationship development; and analytical chemistry. United PharmaTech specialises in the chemical synthesis of building blocks, pharmaceutical intermediates and active pharmaceutical ingredients (APIs) as well as developing off-patent drugs.

“Our businesses are highly complementary, and since we have had great success co-operating in the past, the agreement to merge came naturally,” Dr Shi added.

IDG VC partner Zhang Suyang sees the agreement as evidence that China’s CRO industry is beginning to emerge from its first flush of rapid development into a consolidation phase. “The CRO companies, and the overall size of the CRO industry in China, are still relatively small, and there is huge potential for growth, so we can expect that in the following few years there will be many mergers,” he predicted.

Speaking at a third-anniversary party for Sundia MediTech in Shanghai last week, Dr Wang noted that the company moved into profit last year, with revenues over five times those recorded in 2005. This year Sundia expects to more than double its revenues and profit, without even taking the merger into account.

The CRO has also more than doubled its laboratory and office space each year of its three-year history. New construction plans include a pilot plant for APIs at one of five possible locations, ranging from Sundia’s current base in the Zhangjiang HiTech Park to around 400km away in Nanjing.