Commonwealth Biotechnologies to acquire GL Biochem

Commonwealth Biotechnologies, Inc. (“CBI”) (NASDAQ Capital Market: CBTE) has recently announced a definitive share purchase agreement to acquire Shanghai-based GL Biochem and associated businesses (the “GL Group”), the largest global supplier of research-grade peptide products and peptide reagents. Management is pleased to provide a market update regarding the history, operations and strategy of the GL Group, the industry and marketplace for peptides and peptide reagents, and progress of the merger transaction.

Background

The GL Group was established in Shanghai by Dr. Hongyan Xu in 1998 and has grown to become the largest supplier of pre-clinical peptide reagents and custom peptide synthesis services in the world. The Company has achieved rapid growth without debt financing or additional capital investment and has expanded the scale and scope of its operations using only free cash flow from its operations. Today, the GL Group employees over 800 staff, operates 35,000 ft² and 120,000 ft² manufacturing facilities in Shanghai and is in the process of jointly commissioning a third Shanghai manufacturing facility, ‘Mimotopes-China’. Over the past 5 years, the GL Group has demonstrated compound annual revenue growth of over 40%. Despite the global economic downturn, the GL Group reported a 20% increase in revenues in the first half of 2009 (unaudited) compared to the same period last year.

Industry Context

Peptides play an important role in modulating many physiological processes in the body and therefore have excellent potential as therapeutic agents. Peptide drugs have a number of advantages over both small molecules and proteins, including low toxicity and immunogenicity, excellent specificity, high potency and a low probability of drug-drug interaction problems. Several technical challenges in the use of peptides as drugs have been overcome in recent years and they now represent one of the key growth areas in the drug discovery industry.

Marketplace

GL Biochem caters for the outsourcing requirements of universities, research institutes, pharmaceutical and biotechnology companies for reagents as well as research and development services. Large pharmaceutical and biotechnology companies typically have some capabilities in-house but choose to outsource much of their research and development work to specialist providers such as GL Biochem. Pharmaceutical companies are now unable to generate the large number of necessary candidate compounds in-house and this has led to an increasing trend for outsourcing of drug discovery research. The worldwide market for custom peptides was estimated to be between US$250m and US$450m in 2003 and is projected to grow at an annual average rate of 11.9%, valuing the market between $550m and $990m by 2010.

Business and Operational Strategy

In recent years, GL Biochem has achieved cost leadership in the research grade custom peptide industry through exploiting its scale of production, cumulative experience, competitive labor costs and the manufacture of its own raw materials. This production cost advantage has allowed GL Biochem to price its products and services below other major manufacturers and therefore establish a prominent position in the pre-clinical custom peptide and reagent markets. GL Biochem sells a portion of its custom peptides and reagent products directly to the public but also generates significant revenues through an original equipment manufacturer (“OEM”) strategy, whereby peptides or reagents produced by GL Biochem are sold to peptide or chemical companies in the West and retailed under the Western company's brand name.

Products and Services

GL Biochem develops, manufactures, markets and distributes peptides, peptide reagents and related services for the life-science sector. GL Biochem’s offerings include:

• Research-grade peptides: Custom-made peptide molecules for biological research and drug development applications;
• Peptide libraries: Large numbers of peptides produced in small quantities for various screening applications in immunology and drug discovery;
• Catalogue peptides: Commonly requested off-the-shelf peptides, typically for pharmaceutical or cosmetic applications;
• Peptide reagents: Including amino acids, peptide coupling reagents, protecting reagents and linkers peptide synthesis; and
• Antibodies: Tailored monoclonal and polyclonal antibody production services for immunology applications.

Source: Commonwealth Biotechnologies