Bearing out expectations of rapid growth in the Chinese market for early-stage drug development services, US-based contract research organisation (CRO) Covance has agreed to form a preclinical joint venture with Shanghai-based WuXi PharmaTech.

Under a memorandum of understanding, the CROs will set up a 50:50 joint venture to provide “world-class preclinical contract research services” in China. The initiative will centre on a 323,450sq ft purpose-built facility currently under construction by WuXi in Suzhou and scheduled for completion in 2009.

The preclinical facility, which is designed to meet US Food and Drug Administration and worldwide regulatory standards, will offer Good Laboratory Practice (GLP)-level toxicology, drug metabolism and bioanalytical chemistry services.

While WuX will supply the facility, Covance expects to make an additional investment of around US$30 million as its initial financial contribution to the venture. Further financial and structural details should be disclosed once definitive terms have been agreed and the joint venture is officially established later this year, the partners said.

WuXi has already been an active player in the US market, following up a spectacular initial public offering in New York last August with the US$151 million acquisition of Minnesota-based AppTec Laboratory Services in January 2008. More recently, however, funding has been harder to come by and the Chinese company’s share price has sagged.

Last month WuXi confirmed it was terminating a planned follow-on US public offering of 10,126,800 American Depositary Shares (ADSs), announced in April and subsequently postponed in May as market conditions and the price of the company’s ADSs declined. Up to US$37.0 million of the expected proceeds from that offering had been earmarked for the construction of a preclinical drug safety evaluation centre in Suzhou, China.

The joint venture “will create a powerful partnership between China's leading provider of discovery and development services with the world’s largest public contract research organization”, commented Joe Herring, Covance’s chairman and chief executive officer (CEO). “Covance and WuXi share a common commitment to quality, people, and building client relationships based on trust and performance.”

The combination of Covance's “market-leading and high-quality” preclinical operations with WuXi's track record of delivering “world-class” drug discovery and development services “will enable us to provide superior drug development solutions to our global pharmaceutical and biotech clients in the region”, Herring added.

Tying up with Covance means WuXi can immediately leverage the US CRO’s “world-class expertise and global network”, noted Dr Ge Li, chairman and CEO of WuXi PharmaTech. “This will allow us to accelerate bringing a full-range of preclinical services and GLP toxicology capabilities to this facility.”

In January US-based MPI Research gave a vote of confidence to China’s early development capabilities when it announced a joint venture with Shanghai Medicilon to set up a 50,000sq ft preclinical testing facility in Shanghai’s Chuansha Economic Park. The new company, Medicilon-MPI Preclinical Research (Shanghai) LLC, is expected to be fully operational by 2009, offering preclinical services to US Good Laboratory Practice (GLP) standards.

According to a recent Bloomberg report citing data from the Boston Consulting Group, research personnel and supplies can cost 60% less in China than in the US, while Ernst & Young estimates the cost of a two-month primate study in China at around $20,000, one tenth as much as in the US.