Offshore Opportunity on the Rise

China continues to get a lot of bad press for quality problems with some medications and other consumer products manufactured there, but its popularity as a place to conduct biopharmaceutical research continues to grow. The major clinial research organizations (CROs) are racing to get established there, as much to stay a step ahead of the competition as for the immediate opportunity.

One of the principal areas of new CRO activity is preclinical toxicology. China currently has a strong infrastructure supporting non-GLP-compliant drug discovery studies, particularly in academic settings. However, the country lacks much of the infrastructure needed to support GLP-compliant preclinical studies, reflecting its limited history of new drug development and relatively recent entry into the global pharmaceutical industry. This is the gap that the CROs are looking to fill.

Jim Miller

WESTERN CROS IN CHINA

Bridge Laboratories (Gaithersburg, MD)was the first Western CRO to set up a preclinical operation in China. Bridge, a venture capital-backed spinoff of SRI International (Menlo Park, CA), opened its Beijing laboratory in 2006 and received the Association for Assessment and Accreditation of Laboratory Animal Care (AAALAC) certification in 2006. The company recently raised $18 million in venture new financing, some of which it will use to expand its Beijing facility.

Partnering with Local Companies

Partnering seems to be the way that established Western preclinical CROs are entering the China market. In 2007, Charles River Laboratories (Wilmington, MA) announced a joint venture with Shanghai BioExplorer to open a 50,000-sq. ft. facility. Shanghai BioExplorer's sister company, Shanghai ChemPartner, has a history of successful collaborations with Western companies, notably its ChemExplorer joint venture with Eli Lilly and Company (Indianapolis, IN). BioExplorer's parent company, ShangPharma, recently received a $30-million investment from a major private equity firm.

The latest preclinical CRO to announce its entry into China is MPI Research (Mattawan, MI), which has formed a joint venture with Chinese CRO Shanghai Medicilon to open a 50,000-sq. ft. facility in Shanghai. Shanghai Medicilon, founded in 2004, offers discovery services including medicinal chemistry, custom synthesis and non-GLP animal toxicology, and drug metabolism and pharmacokinetics. The new facility is expected to be operational in 2009.

Covance (Princeton, NJ) remains the principal holdout among the Western preclinical CROs in establishing a China presence. Covance already has a central laboratory and clinical research operations there. Covance management, however, believes that there is still time to get established in the preclinical market.

Most CROs are entering China with the expectation that a significant local market opportunity will develop as major pharmaceutical companies establish research development operations there, and as Chinese pharmaceutical companies ramp up their own new drug development efforts. Most agree that cost savings will not be the major attraction as it has been in discovery and process chemistry. Preclinical research is not as labor-intensive as early-stage chemistry, and the lack of animal-care infrastructure in China, such as certified feed and animal diagnostic services, makes animal care expensive.

Another major challenge is achieving GLP and AAALAC compliance; without them, major pharmaceutical companies can't conduct regulatory toxicology studies in the China facilities. Compliance with AAALAC standards of animal care has been rare, but a sign that change is underway is the fact that seven Chinese facilities have received AAALAC accreditation since early 2006. China has no board certification for pathologists though, and Western requirements for veterinary care are hampered by lower Chinese educational standards. Companies are sending experienced staff from their US operations to help setup and manage the new operations and train locally recruited employees.

Those challenges are why it makes sense for Western CROs to get established ahead of demand and to team up with experienced Chinese companies. Building a facility, training staff, and gaining accreditation is a 2–3 year process at least, and Bridge's experience (their Beijing facility has been slow in gaining market acceptance) indicates that time is necessary to get fully established and compliant. The MPI and Charles River joint ventures reflect their understanding of the long learning curve, the value of having a local partner that knows how to operate in China, and the value of a partner with a chemistry services business that might feed the preclinical operation.

The biggest bet on the future of the China-based preclinical business is being made by a major Chinese company, Wuxi PharmaTech, which is building a 267,000-sq. ft. facility in Suzhou. Wuxi recently acquired AppTec (St. Paul, MN), a provider of analytical testing, biomanufacturing, and preclinical services, which it justified, in part, by the opportunity to share AppTec's experience in compliant preclinical testing with Wuxi's pending Suzhou operation. Wuxi also will have the advantage of its $150-million discovery and chemistry services business and its many major pharmaceutical relationships to feed the preclinical operation.

CENTRAL LABORATORY CAPACITY

Preclinical services are not the only areas where Western CROs are expanding in China. Two CROs have recently added central laboratory capacity as the volume of clinical studies there continues to grow.

Quintiles (Research Triangle Park, NC) opened a 7,000-sq. ft. central laboratory in Beijing. The laboratory is part of a new 17,000-sq. ft. facility where Quintiles is consolidating its Beijing clinical research services. The new laboratory is 50% larger than Quintiles's previous operation, which was located at the Peking Union Medical College. The company said the laboratory has 13 employees and is growing.

PPD (Wilmington, NC) is taking over from Quintiles's partnering role with Peking Union Medical College. Under the terms of its agreement with Peking Union Lawke Biomedical Development Limited (PUL), PPD invested in laboratory equipment located at Peking Union Medical College. PPD says the equipment is identical to its other central laboratory locations in Belgium and the US, and that it has crossvalidated assays, making data compatible with that generated at the other laboratories. PUL will conduct chemistry, hematology, urinalysis and hemoglobin A1c, and esoteric tests for PPD and will have rights to use the equipment to conduct central laboratory testing for clients running clinical trials in China.

PPD joins Quintiles and Covance as major CROs with central laboratory operations in China. The PPD statement suggests that owning a central laboratory in China may bestow a significant competitive advantage. According to the company, "Chinese law makes it extremely difficult to export lab samples to other countries for testing," and it will save clients money because they will be able to process samples locally rather than having to export them. If so, owning central laboratory operations in China is more than just an opportunity to grow the business; it marks another opportunity for the largest CROs to differentiate themselves from smaller rivals.

Jim Miller is president of PharmSource Information Services, Inc. , Springfield, VA, 703.383.4903, jim.miller@pharmsource.com