That was one very short partnership.
China-based WuXi PharmaTech (NYSE:WX) and U.S.-based Covance (NYSE:CVD) broke up yesterday -- just three months after announcing they'd form an alliance to perform pre-clinical research for drug developers looking for research and development on the cheap. Instead the companies will proceed with their plans to set up in China on their own.
When the deal was announced last June, I really didn't think it made much sense for WuXi. Sure, Covance is considerably larger, and gaining access to its clients and expertise might have helped WuXi in the short term. But WuXi seems to be attracting more and more clients on its own, so I wasn't sure how giving up 50% of the profits would have helped the Chinese company in the long run.
The companies didn't give a reason for their split. There must not be too many hard feelings from the divorce, though, because in their separate press releases, the companies didn't have anything bad to say about each other (or the deal). It's possible they had different plans for how quickly they'd roll out the services. Perhaps Covance was a little preoccupied with its deal with Eli Lilly (NYSE:LLY).
Whatever the reason, it doesn't mean I like them any less. In fact, I'm really bullish on pharma outsourcing companies in general. From ICON (NASDAQ:ICLR) to Charles River Laboratories International (NYSE:CRL) and even product-promotion outsourcer inVentiv Health (NASDAQ:VTIV), companies in this industry should be able to increase revenue as drug developers continue to reduce costs.
As long as outsourcing companies can do the work for less, such companies should be able to prosper even in times of fear. And I'm just fine with that.
