Covance will close the Chandler, Arizona facility later this year and its peer Charles River, which has a preclinical site in Nevada, expects to gain an edge in the pursuit of West Coast biopharma businesses.
“We do think that it gives us an advantage. We will be the only larger preclinical provider with a basic West Coast presence”, Thomas Ackerman, chief financial officer at Charles River, said this week at the Goldman Sachs Healthcare Conference.
Although the biopharma services sector has globalised quickly over the past decade in the preclinical space some clients are still “somewhat sensitive to proximity”, Ackerman said. It is with these clients that Ackerman thinks Charles River now has a “competitive advantage” it will try to turn into sales.
To realise the opportunity Charles River will aggressively pursue certain biopharma companies. “We have an idea, not specific knowledge, of who many of the clients are so we we’ll obviously try to be aggressive in…terms of customer targeting for additional business”, Ackerman said.
As with any facility closure Covance expects to lose a proportion of the business it did at the Arizona site. “Based on our historical experience, as well as watching other competitors, we model something in the 75, 80 per cent range [for business retention]”, Joseph Herring, CEO of Covance, said in May.
The most recent historical experience Covance has is the closure of its facility in Vienna, Virginia, US. Herring said Covance kept four-fifths of its Vienna clients by transferring work to its other facilities.
Buy to grow
While Charles River thinks it can win some new toxicology business it is still looking beyond this unit for sales growth. In particular, Charles River views discovery services as an opportunity and spoke of a willingness to make acquisitions at conferences run by Goldman Sachs and Jefferies & Company.
David Windley, equity analyst at Jefferies, wrote: “[Charles River] did express interest in continuing to move upstream, further into discovery, via acquisitions. This move may take some time, however, as management characterized prices for these types of companies as still being much too high.”
Charles River has spoken publicly of an interest in strengthening in discovery since at least August but high prices have hindered its pursuit. When a deal is made a small, bolt-on acquisition is most likely.
Appetite for big deals has waned since shareholder opposition stopped the $1.6bn (€1.3bn) takeover of WuXi. Charles River thinks the deal had merits though. “Management noted that since the WuXi deal was contemplated, WuXi has performed better than the projections provided”, Windley wrote.