In what appears to be a major course correction for ailing Wayne, Pa.-based contract research organization (CRO) Encorium, the CRO is set to acquire Prologue Research, a phase I through IV oncology-focused CRO based in Columbus, Ohio, and three additional CROs through a merger with Linkcon, a holding company of Chinese merchant bank Chardan Capital.

In an analyst call detailing the actions, Kai Lindevall, M.D., Ph.D., Encorium’s chief executive officer, called the events “a major milestone event in Encorium’s history” and said that the company has taken “a bold and thoughtful initiative for change.”

On June 12, the company’s stock closed up 21% at $2.00 on the news.

Prologue will be purchased for $13 million, plus a $500,000 cash payment for granting an exclusivity period during negotiations. Founded in 1998 as a non-profit spinoff CRO of Ohio State University’s James Cancer Hospital/Solove Research Center, the company became a private enterprise in 2004. It has 75 staff.

A financing vehicle, Linkcon—also known as Fine Success Investments—is in the midst of buying three well established, yet unnamed, CROs in emerging markets. The companies are based in China, India and Latin America.

Linkcon will also purchase a controlling stake in a Chinese operating company that runs a web portal (www.JK1.com), a site for both healthcare professionals and consumers “promoting the exchange of medical information between China and the Western world.”

Encorium stated the site would offer opportunities in patient recruitment, communications with Chinese regulatory officials and exchanges in research data.

Encorium’s merger with Linkcon involves a transaction in which shareholders will receive a total of 22.5 million shares—12.5 million shares given upfront and 10 million shares available for purchase post merger for $25 million. Linkcon’s investors will own 49% of the new Encorium entity. Encorium will use the $25 million to help pay down debt and finance the acquisition of Prologue.

Revenue gained through the combined buys will take Encorium from a $37 million CRO to nearly a $55 million global player with a backlog of business in the range of $65 to $70 million. The acquisitions will also greatly expand Encorium’s ability to run global trials, especially in emerging markets. That would be a boost to the CRO’s recent performance. Encorium had net losses of $2.7 million in 2007. Bad times not abating, the company had a $2 million loss in first quarter of 2008 on revenues of $8.5 million.

Encorium’s deal with Linkcon is contingent on the purchase of these three CROs.“I believe we are finally in the position to do what needs to be done to get back to profitability and to increase shareholder value,” said Kenneth Borow, M.D., Encorium Group’s president, chief medical and strategic development officer during the call.

Borow added that the company is on a “clearly defined pathway” to becoming a leading mid-sized CRO.

“We will assume that space between the behemoth, traditional global CROs, many of whom we believe have lost their focus in client service, and the large academic CROs that we believe have more of an ivory tower approach to clinical research,” he said.

The company cited financial estimates foretelling a rise in the global CRO market to $23 billion by 2009 and that many of the top sponsor companies are projecting that within three years, two-thirds of their clinical trials will be conducted outside the U.S. 

Tom Ludlam, president and chief executive officer of Prologue, stated that the addition of Prologue will strengthen Encorium’s oncology franchise and will greatly enhance its ability to win phase I through IV contracts. Ludlam, who has run the company since 2004, will join Encorium as a senior executive.