CRL & WuXi discuss Q2 results, life after collapse of deal

By Nick Taylor

- Last updated on GMT

Related tags: Wuxi, Better

CRL and WuXi have both vowed to independently build their capabilities, to become integrated service providers, but reported mixed financial results.

Having terminated the $1.6bn (€1.2bn) deal both companies brought forward the release of their financial results. For Charles River Laboratories (CRL) in particular this represented an early opportunity to begin rebuilding trust with shareholders who were critical of the proposed deal.

However, following release of the results, in which CRL lowered guidance, the firm’s share price continued downwards to end the day 13 per cent lower than before the WuXi deal was proposed in April.

Lower guidance was issued because business is recovering more slowly than expected. The preclinical services unit reported a 12 per cent drop in revenues, down to $125m, and sales expected to remain flat in the second half of 2010.

CRL had anticipated subsiding merger activity, improved biotech funding and client capacity reductions would lead to preclinical improving in the second quarter. However, this failed to materialise.

Revenues from research models and services increased by one per cent to $165.7m. Overall net sales fell five per cent, with costs increasing, and this underpinned a 44 per cent drop in operating income, down to $28.2m.

Life after WuXi

In a conference call with investors James Foster, CEO of CRL, reiterated his belief that big clients are seeking broad strategic partnerships, but admitted it is unclear when these relationships will come to fruition.

Global pharma clients readily admit that the current pharma model is broken, and point to CROs (contract research organisations) as the primary means to reduce costs and improve efficiency​”, said Foster.

Acquiring WuXi was intended to give CRL the integrated service offering it believes big pharma wants. Foster said CRL will now build its early development capabilities, specifically discovery services, organically and through small tuck-in acquisitions.

Life at WuXi

WuXi reported more positive second quarter results, with operating income up 18 per cent to $16.1m. This improvement was underpinned by strong growth in revenues across laboratory services, both in the US and China, and manufacturing.

To continue growing WuXi is expanding into commercial manufacturing and good laboratory practice (GLP) toxicology. Having successfully completed two regulatory inspections GLP work for biotech and big pharma clients is expected to begin in the fourth quarter.

Adding GLP toxicology is part of WuXi’s strategy to build a broad, integrated platform of R&D services. In a conference call with investors Ge Li, CEO of WuXi, said joining with CRL would have accelerated this process but the fundamental strategy has never changed.

Now WuXi is WuXi again​”, said Li.

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