Charles River ‘hot in pursuit’ of discovery company acquisitions
Foster said the company is “hot in pursuit of drug discovery acquisitions,” and meeting currently with several companies, most of which are private-equity or venture-equity owned.
“We have several serious conversations going on right now. We’ll be disappointed if we don’t get some meaningful M&A done in 2015,” Foster said. He added that the company’s strategy is to use its cash for “strategic, accretive acquisitions, primarly upstream,” to “incentivize our clients to outsource more in that market.”
He also noted that “no one is particularly servicing” the discovery side of drug development “well,” as it’s a mix of companies and academic resources.
Charles River’s push into discovery parallels its previous path to develop outsourced toxicology services, which when CRL first got into it in 2000, was being “begrudgingly outsourced,” as pharma companies “looked down on CROs,” Foster said. Now the toxicology testing business “is probably 50% outsourced, moving rapidly to 70% or more.”
“We bought 6 small companies over half a dozen years [in the toxicology space] and built a big portfolio. We’re confident we can do that again. There are a lot of potential acquisitions,” Foster added.
And although drug discovery services are different from toxicology, “the same economic drivers driving toxicology and safety assessment will in time drive the outsourcing of drug discovery,” Foster said, noting that currently about 10-15% of discovery is outsourced. Discovery will still be different, however, he added, “because the drug companies look at that as their baby.”
“The principal work will be the large, repetitive things we can industrialize but we’re early in the process,” Foster said.
He also noted that pharma and biotech clients are increasingly looking for scientific collaboration, especially among the virtual biotech companies that outsource nearly all of their work. Foster classified the biotech market as currently “exhilarating,” and “on fire,” and Charles River is now seeing its work with biotech clients outpace its work with pharma companies.
The “gradual outsourcing phenomenon over the last decade is accelerating, and there’s been a bunch of mergers in the client space…as we see infrastructure taken out, there’s more outsourcing,” Foster said.
