China's Drug Contractors on a Fast-Growth Track

Companies that conduct research for drugmakers are poised for torrid growth in China as their multinational clients look to sell more medicines in the world's most populous country and cut development costs.

Such contract research organizations, or CROs, charge large drugmakers for conducting all stages of research -- from discovery of compounds that might be used as drugs, to animal studies and expensive clinical trials involving hundreds or thousands of patients with various ailments.

Most of the world's largest drugmakers, including Pfizer Inc, Merck & Co and Novartis AG, have turned to local Chinese drug contractors with niche specialties and a cheaper pool of scientists to deliver less costly drug trials, and to gain access to China's large pool of patients.

Total revenue of China's CROs is unclear since the local drug contractors are dominated by scores of private businesses and only one publicly traded company, WuXi PharmaTech.

But CROs in China that specialize in late stages of research, including clinical trials, are on a fast-growth track, said Ranjith Gopinathan, senior research analyst at consulting firm Frost & Sullivan. They capture annual revenue of about $145 million, or less than 2 percent of the global CRO market. They are expected to expand at 18 percent annually, reaching $240 million by 2012, Gopinathan said.

Hence, multinational CROs, including U.S.-based Covance Inc and Charles River Laboratories International Inc, are aiming to be far bigger players in the country.

"The big drivers are the big, untapped and rapidly growing markets," William Blair & Co analyst John Kreger said. "That's what the pharma industry desperately needs right now."

While the business in China thrives, Kreger said he expects growth of the global CRO market to dip into single-digit range in coming years because Western drugmakers are cutting back on how much they are willing to pay contract research companies.

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