Financial markets have tumbled in recent months but having met with WuXi PharmaTech a market analyst is optimistic that spending with China-based contract research organisations (CRO) remains strong.
“The primary conclusion from the meetings is that the macroeconomic environment does not appear to be impacting client willingness to spend on R&D (research and development) projects in China”, Liping Cai, research analyst at William Blair, said in a note to investors.
Biopharm companies “continue to aggressively outsource R&D”, Cai said, and a greater proportion of spending is being focused on China. David Windley, equity analyst at Jefferies and Company, also met with WuXi recently and noted the resilience of demand for China-based laboratory services
“WuXi continues to see strong interest in its core lab business, unaffected by the recent slowdown that some CROs have experienced”, Windley said. Vendor consolidation by biopharm is contributing to interest and WuXi has seen an uptick in these types of conversations over the past six months.
Service expansion is also underway but growth in GLP (good laboratory practice) toxicology in China is taking time. After Charles River exited the market WuXi hired many of its experienced staff, Cai said, and demand has gradually risen as the company continues the “slow process of building trust”.
“It is taking time to convince clients to entrust large studies to China-based operators”, Windley said, but WuXi “expects contract negotiations for more extensive studies with large clients to commence later this year”.
Non-human primate studies can be performed up to 40% cheaper than in the West, Windley said, and WuXi expects to reach full capacity within five years. When operating at full capacity the site will generate sales of up to $50m (€37m). Cai expects the site to breakeven when it has $10m of sales.
Beyond GLP toxicology the next service expansion at WuXi is the shift into clinical trials. WuXi first outlined its plan during a quarterly conference call in August and has now confirmed a few details.
“WuXi expects to expand into clinical development by year-end or soon thereafter. The company is looking to acquire a small clinical provider as a platform to organically build a Phase I to II presence”, Windley said. Cai made a similar point, adding that she expects WuXi will add Phase III over time.
Manufacturing nears capacity
Close to four-fifths of large scale manufacturing capacity at WuXi is being used to produce Incivek (telaprevir) for Vertex, Windley said. Approval of Incivek in Europe and Japan would likely see demand exceed capacity, Cai said, and WuXi is preparing to expand. Vertex won approval in Europe yesterday.
“[WuXi] has started the site selection process for a new facility, which is not expected to be completed for several years. A new facility is expected to cost in the range of $50m”, Windley said.