The firms' joint venture (JV) will develop and commercialise MEDI5117, a candidate treatment for autoimmune and inflammatory diseases currently being assessed in Europe and the US in Phase I trials, for the Chinese market.
Chinese regulations state that drugs not yet approved in other markets must be both tested and manufactured in the country. Under the deal much of this work – from preclinical analysis, through clinical trials and commercial production – will be carried out by Wuxi.
The Shanghai contract research organisation (CRO) also has the right to commercialise the product in China, if Medimmune - or parent firm AstraZeneca - decide not to do so when development is completed.
Wuxi has worked with AstraZeneca since 2006, providing screening services for candidate compounds. However, the joint venture – which MedImmune R&D chief Bahija Jallal described as a ‘strategic partnership’ – is on a much larger scale coming as it does at a time when the Anglo-Swedish drugmaker seeks to offset generic competition by expanding in new markets.
AstraZeneca did not respond to Outsourcing-pharma.com’s request for additional information ahead of publication.
Risk sharing
By forming a joint venture with Wuxi, MedImmune is effectively sharing the risk of developing MEDI5117 for the Chinese market, which is obviously a good idea for a drugmaker under pressure to create new products while cutting costs.
However, such agreements have not always been viewed as a good idea for CROs as they can require significant investment, increase clinical development costs and only start to pay off in the longer term.
This point was made by William Blair & Company analyst John Kreger, who cited similar strategies adopted by PPD and Quintiles as examples in a note to investors.
“In general, these types of deals have not been well received by shorter-term investors since they tend to reduce near-term profitability as trial costs ramp up. The payoff, however, is not likely to be seen for many years, and the probability of success is generally low given the high failure rate in drug development.”
Kreger predicted the deal will increase Wuxi’s trial costs over the next two years and reduce margins. He did not speculate on the impact longer term but did underline that clinical research is usually associated with a significant increase in spending.
"We project WuXi's total trial costs to ramp up to $2.3 million in 2013 and $4.3 million in 2014. Once the trials progress into the clinical stages, costs can increase significantly, but the odds of approval also increase dramatically...We now expect operating margin contraction of 26 basis points in 2013 and 13 basis points in 2014.
“Given the large size of the Chinese market, peak sales of this drug in China assuming approval could be in excess of $250 million, in our view, although any market sales are likely at least five years out."