Big pharma thirst for pre-IND services driving CRL deals

Big pharma has historically kept discovery and pharmacology work in-house but this is beginning to change. In response, Charles River wants to bolster its pre-IND (investigational new drug) capabilities by making acquisitions, at least one of which could be completed this year.

“We are evaluating a number of small, strategic acquisitions and in-licensing opportunities which would enhance the [discovery and pharmacology] services we can offer our clients​”, James Foster, CEO of Charles River, said in a conference call with investors.

Big pharma clients have identified niche vendors with these capabilities but would prefer to work with a bigger, more established company. Charles River plans to buy one or more of these niche players, some of which big pharma clients have recommended.

“Clients are finding very high quality, but very small companies to do this work for them but they’re very uncomfortable. [They’re unsure if the vendor’s] going to stay in business, or if they’ll have the sort of regulatory rigor and financial staying power that are essential to them​”, Foster said.

Making niche players part of Charles River could ease these concerns. “[Outsourcing] discovery is new for [our clients] and they’re not going to be comfortable until companies like us to have the scientific capability to do the work​”, Foster said.

Charles River could work to develop the capabilities in-house but is set on an acquisition strategy. “Probably it’s best to [expand services] through small high quality acquisitions where you are acquiring some very good science and some marquee scientists​”, Foster said.

Some of the targets would expand Charles River therapeutically and geographically, but Foster stressed any deals will be small. Last year Charles River agreed to buy China-based WuXi PharmaTech for $1.6bn (€1.1bn) but abandoned the deal after opposition from shareholders.

Diversification​

Expanding discovery services would give Charles River an extra revenue source at a time when one of its core offerings, preclinical services, is struggling. Toxicology overcapacity remains a problem and the way clients approach these studies has also shifted in response to cost-cutting actions.

“For those compounds that do enter animals studies the more expensive toxicology studies are being delayed until shorter-term data can validate the investment. This has resulted in a smaller overall market for the toxicology providers​”, David Windley, equity analyst at Jefferies & Company, said.