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Charles River Labs Seeks Suitors for its Shanghai Facility

publication date: Feb 15, 2011
author/source: Richard Daverman, PhD
Charles River Labs (NYSE: CRL) intends to sell its Shanghai pre-clinical drug development lab, saying China hasn’t yet developed a market for US-compliant toxicology testing. The facility remains open and its owners are in talks with interested parties about purchasing the lab, according to executives close to the company. The US-based CRO owns and operates the facility through a JV that it formed with Shanghai BioExplorer.

Charles River told investors that it may be five years before China is ready for the services it provided at its facility. Immediately after Charles River opened the lab, it began looking for a second site. But the company soon began to dampen expectations for its China operations, and never announced a second facility. Then, in December 2010, Charles River announced it was seeking “strategic alternatives” for the facility in a move to cut operating losses.

CEO James Foster said reaction from the company’s clients to the announcement was “disappointingly quiet.” When Charles River opened the facility, the company expected to generate business from two separate groups of clients: its existing Western customers who were looking for lower-cost development services, and domestic China pharmas who wanted to pursue drug approvals in the West. Neither set of potential customers met the company’s expectations for later-stage toxicology services.

On the other hand, Foster expects early-stage drug discovery services will remain a big draw for CROs in China. He said he is looking for small acquisitions to build up Charles River’s offerings in this area.

That’s ironic because in April 2010, Charles River offered $1.6 billion to buy WuXi PharmaTech (NYSE: WX), one of China’s major CROs providing early-stage drug discovery services (see story). But large shareholders of Charles River thought it had overpaid. Despite several attempts by Charles River to defend the acquisition, the company’s significant shareholders forced it to back out of the deal in July (see story). Although WuXi’s pride was wounded, it received a $30 million breakup fee for its troubles.

As Charles River pointed out, it is not the only US-based CRO to set up shop in China and then back out. MPI Research, which had established a drug development facility in Shanghai as a joint venture with Medicilon, ceased operations during 2010.

See our other articles on Charles River Labs, Shanghai BioExplorer and WuXi PharmaTech.

Editor’s note: In a prior version of this article, ChinaBio® Today reported that CRL’s Shanghai facility had ceased operations. We have been told by company executives that the facility is in fact, still in operation and performing client studies. The article mistakenly stated that BioExplorer was a division of ShangPharma; it was an independent entity

Disclosure: none.


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