At the time the deal was announced back in June questions were raised about the deal from WuXi’s perspective. Although the companies had said one of the benefits was to broaden WuXi’s client base, the Chinese company has been doing spectacularly well of late in attracting clients on its own.
For Covance the benefits were more straightforward, with the JV providing it with a foothold in China, with the inherent benefits of lower wages and higher margins the nation can bring.
The JV was intended to be run out of a 323,450 sq. ft. facility which is currently being constructed by WuXi in Suzhou, China, and is due to be completed in 2009.
Neither company was prepared to give a reason for the decision, although both issued statements asserting their ability to compete in the preclinical services segment in China.
WuXi insisted that it would press on with the construction of the facility and “plans to offer a full-range of preclinical services and GLP toxicology capabilities ... helping WuXi clients to improve the success of discovery and shorten the time of development.”
Dr Ge Li, WuXi’s chairman and CEO, said the facility was being built through already-budgeted capital expenditures and will not require additional funding. He added that the move would allow WuXi’s shareholders to receive “maximum benefit”, which might suggest that some were unhappy about signing away 50 per cent of the profits from the facility.
For its part, Covance said it had decided to “pursue its original preclinical strategy in China.”
In an equally combative statement, the CRO said it would build its own “world-class preclinical facility in the region and aggressively compete as the global market leader in a business we know very well.”
The firm added that it would build the same array of preclinical services that it already offers in Europe and the US, and that these would complement its existing Phase II/III clinical development, central laboratory and bioanalytical capability in China.
There is also speculation that the firm's priorities have changed in the wake of its strategic $1.6bn alliance with Eli Lilly.
The question now is whether WuXi can do as well on its own as it would with Covance’s help. Dr Li seems convinced, arguing that the firm already has relevant expertise and capability in place as a result of its $151m acquisition of US firm AppTec Laboratory Services.