The art of collaboration

WuXi reaches agreement with J&J Pharmaceutical Research & Development

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SHANGHAI, China—WuXi PharmaTech, a Chinese R&Doutsourcing company, has reached an agreement with Johnson & Johnson PharmaceuticalResearch & Development (J&JPRD) to collaborate in the area ofpreclinical services. 
Under terms of the agreement, WuXi will become a provider oftoxicology and other nonclinical services to J&JPRD.
Dr. Ge Li, chairman and CEO of WuXi, says the collaborationwith J&J builds on an existing agreement to provide the company withintegrated pharmaceutical R&D services.
"We believe that China, with its high-quality scientifictalent and favorable cost structure, is destined to become a major center fortoxicology services over the next decade," Li says. "We aim to become a leadingprovider of these services and to add toxicology to WuXi's broad, integratedplatform of laboratory and preclinical services."
In addition, J&JPRD will provide training and otherservices, reimbursed by WuXi, to establish the GLP quality system and technicalcapabilities to meet the international standards at WuXi's toxicology facilityin Suzhou, China.
Construction of this facility, the largest in China with314,000 square feet of space, was completed at the end of 2008. In 2009, thecompany hired a management team with extensive international experience andmade substantial progress in training an initial staff of technicians toperform GLP services.
The Suzhou facility is currently supplying non-GLPtoxicology services as well as client-sponsored GLP validation studies. Itremains on target to start offering GLP toxicology studies by mid-2010, WuXisays.
Contract research organizations like WuXi have picked up theslack as big pharmaceutical companies trim their own research operations, butthey are still feeling the downturn. Li has said the company's newer serviceshave been "increasingly significant revenue growth drivers."
What impact the collaboration could have on WuXi's bottomline remains to be seen.  WuXirecently announced it shifted to a profit in the fourth quarter, compared witha year-ago period, when the research and development outsourcing company lostmoney due to a large impairment charge. The firm expects fiscal 2010 revenue togrow 15 percent to 19 percent to between $310 million and $320 million. WuXisays lab services revenue will rise 13 percent to 16 percent, implying a totalof $282.4 million to $289.9 million. The company also says manufacturingrevenue will improve from its 2009 total of $20.1 million. Manufacturingrevenue fell 58 percent over the past year.
Analysts on average were expecting revenue of $328.6million, according to Thomson Reuters. WuXi also expects a decline in its GAAPand non-GAAP gross margin of 2 to 5 percentage points. The decrease, primarilyin the second half of 2010, is due to factors such as an increase in labor anddepreciation expenses, costs from ramp-up of certain operations and pricingpressure, the company said in a statement.

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