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The Week in Review: The Virtualization of Biopharma

publication date: Feb 16, 2008
author/source: Richard Daverman, PhD

It seems axiomatic to us that the world is increasingly turning to China as a place to discover, develop and manufacture biopharmaceutical products. However, Charles River Labs (NYSE: CRL) said last week that its experience as a CRO in China has been that its contract work comes from local China companies (see story). Charles River has labs around the world, and it has recently established a presence in China as well. The China’s labs work may be from multinational pharmas that are headquartered in the US or Europe, but the particular compounds that find their way to its China lab were discovered in China, either by outsourced labs or China-established facilities of its multinational clients. To put it differently, CRL’s clients in the UK are not asking it to take a UK-discovered drug candidate to China to do preclinical development at a reduced rate. As far as Charles River is concerned, its CRO work remains a more or less local phenomenon.

Rival CRO WuXi PharmaTech (NYSE: WX), which was built on an all-China model, may not agree, but WuXi has not spoken about the source-location of the drug candidates on which it is working. WuXi has said only that, like Charles River, it does development work for most of the major biopharmas.

At the same time, Charles River said it prospered in 2007 because it anticipated the “virtualization” of big biopharma. Given that big biopharma was under pressure to develop more products at a lower cost, virtualization was its only viable option, a fact that has been a boon to CROs like Charles River. In 2005, sensing that this virtualization was about to take place, Charles River began expanding its services and capacity, and the increased investment has now paid off for the company.

Last week, in company news, a subsidiary of Mylan Labs (NYSE: MYL) announced that it has upped its ownership of the Mchem Group (see story), a China-based company that produces intermediates, active pharmaceutical ingredients and finished dose products. In 2006, Mylan bought a 71.5% in Matrix Labs of India $736 million. Matrix, which also makes intermediates and APIs, has owned 60% of Mchem since 2005, but it has now increased its stake in Mchem to 97%. Terms of the deal were not disclosed. Both Matrix and Mchem are involved in making generic versions of HIV/AIDS drugs. Once a generic drug powerhouse, Mylan has watched its stock price decline lately. The Matrix acquistion (and by extension, the Mchem purchase) was supposed to help Mylan lower costs and extend the markets for its products.

Chemizon (KOSDAQ: 010170), a drug discovery company with headquarters in the US but labs in Korea and Beijing, announced that it will spin off a new company to develop products discovered at the Korean Research Institute of Bioscience and Biotechnology (KRIBB) (see story). Drug candidates that address areas of unmet need will be the first to be developed. Chemizon also said it would turn to its new Chemizon-Oakwood Bioventures private equity fund for start-up capital. Chemizon was formed in 2005 by Dr. Anthony Piscopio, previously a founder of Array BioPharma (NSDQ: ARRY). Chemizon trades on the South Korean exchange following a reverse merger with a company called Optomagic.

Using its connections with Yale School of Medicine, SurExam Life Science & Technology (Shenzhen) Co. has secured the China rights to develop a test for early stage ovarian cancer that was discovered at Yale (see story). Dr. Jiasen Xu, chief executive officer of SurExam, is a graduate of Yale. Unlike previous tests, the new ovarian cancer diagnosis kit is effective in detecting early stage cancer, which it can diagnose with a 99% accuracy. Earlier tests used proteins from tumors as biomarkers, an effective technology if a sufficiently large tumor is present. That meant it could detect late stage ovarian cancer, but not effective against early stage forms of the disease. The new Yale-developed test uses proteins that the body produces in response to a tumor, along with the tumor proteins. The test is currently in a Phase III trial in the US.

Tianyin Pharma (OTCBB: VSCO) reported strong results from the first half of its fiscal 2008 (see story). The company earned $3.2 million on $14.9, a 70% increase in revenues and a 65% bump in net income. Unfortunately, the second quarter was pretty much in line with the first quarter, a fact that disappointed investors. Tianyin, which sells modern forms of traditional Chinese medicines, become publicly owned in January, after it completed a reverse merger with a company named Visicorp. By the end of January, Tianyin completed a $15.2 million private placement that it will use to expand its production capacity over the next six to twelve months.

And also during the past week, the issue of safety in China-sourced pharmaceuticals returned to the headlines. It was reported that Baxter Healthcare (NYSE: BAX), whose heparin product was recalled because of side effect problems, sourced its active pharmaceutical ingredient for heparin from China (see story). A US supplier, who was not named, manufactures the API in its factory near Shanghai. Although the FDA was supposed to inspect the subsidiary, the inspection did not take place. The China-sourced API has not been definitely named as the cause of the problems; nevertheless, the news reignited fears of China pharmaceutical safety and showed that the FDA inspection system remains understaffed and underfunded.

Disclosure: none.


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