Covance’s (Princeton, NJ) announcement this week that it will partner with Shanghai’s WuxiPharmaTech in a joint venture for preclinical services reflects a shifting paradigm in pharmaceutical outsourcing.

The two companies entered into a memorandum of understanding to create a 50-50 joint venture to provide preclinical contract research services in China. WuXi is building a 323,450-square foot facility in Suzhou, China, for the joint venture. The facility is expected to be completed in 2009. Covance also plans to make an initial investment of approximately $30 million.

WuXi has had a fast ascent and has established itself as one of the leading contract research organizations (CROs) in China. The company was formed in December 2000, and last year had an initial public offering on the NY Stock Exchange. In 2007, its China-based operations provided services to more than 80 pharmaceutical and biotechnology customers, including 9 of the top 10 pharmaceutical companies, according to the company.

The Covance joint venture is the second recent investment by WuXi in building its platform through partnering with US-based companies. Earlier this year, WuXi completed the acquisition of AppTec Laboratory Services (St. Paul, MN) for $162.7 million. AppTec provides manufacturing and laboratory services to the biopharmaceutical and medical-device industries.

Covance is one of the largest drug-development services companies with annual revenues of approximately $1.5 billion. The move not only positions the company in China, but also complements Covance’s preclinical operations with WuXi’s drug-discovery and development services.

It will be interesting to watch the execution of this joint venture and other moves by China-based CROs in positioning in the global market