Covance Increases Emerging Markets Focus: Building Pre-Clinical Facility in China

Covance (NYSE: CVD), the global CRO, announced construction is underway on a pre-clinical facility near Shanghai, a facility that is currently expected to open late summer 2010. Joe Herring, Chairman and CEO of Covance, estimated the company will make an investment of between $20 to $25 million to establish the pre-clinical facility, part of which was spent in 2009.

Herring announced the facility as part of Covance’s greater China initiative, which includes increased clinical head count, a central laboratory, and a bioanalytical laboratory. The growth in China, in turn, is part of an increasing emphasis at Covance on emerging markets. The company has opened 15 new clinical offices in emerging markets over the past 18 months and it sees further growth in the future.

Covance’s China strategy hit a major bump in the past. In June of 2008, Covance and WuXi PharmaTech (NYSE: WX) announced plans to form a JV to operate WuXi’s Suzhou preclinical lab, which was being built at the time. In a big surprise, three months later, the two companies announced the planned partnership was cancelled and WuXi would have 100% ownership of the facility. No reason was given for the breakup.

Shortly thereafter, Covance said it was in no particular hurry to build its own facility because it expected China’s cost advantage to disappear in the near future. It does seem, however, that Covance began making plans, which it did not announce, in very short order to build a wholly owned preclinical facility.

The announcement of the new China facility came as Covance officials talked to investors following release of their Q4 financial performance.

The company added that Covance was profitable in China during the quarter and considers its prospects “very, very good for 2010 based on central lab and clinical work that we've won,” according to Herring. He said China revenues were up 180% last year and the company expects revenues to continue to ramp higher at a fast rate.

On the other hand, Herring cautioned that “From a competitive landscape there are a lot of CROs [in China]. There is a fair amount of competition, but I would say that the flow in volume work is not tremendous at this point. Our strategy is to be there and grow with our clients. [H]aving a pre-clinical facility is a natural extension of what we are already doing there. We planned to open it later on this summer and we feel really good about that service offering.”

Disclosure: none.