Charles River Labs Expands Manufacturing Capabilities Through CDMO Acquisition

On February 17th, Charles River Laboratories announced that it signed an agreement to acquire a premier cell and gene therapy CDMO, Cognate BioServices, Inc., for $875 million in cash. The transaction is expected to close by the end of the first quarter of 2021, subject to regulatory requirements.

“Cognate BioServices presents a unique opportunity to expand into a high-growth, value-added sector of the CDMO market and enhance our ability to meet our clients’ needs in emerging areas of scientific innovation,” said James C. Foster, Chairman, President, and CEO of Charles River Laboratories.

What Benefits Does This Acquisition Entail?

Cognate offers comprehensive manufacturing solutions for cell therapies and is based in Tennessee, Maryland, Sweden, and the UK. The CDMO has extensive experience producing various cell types and technologies used in cellular immunotherapy and immuno-oncology, regenerative medicine, and advanced cell therapy.

Cognate is Charles River Lab’s 29th acquisition. Besides expanding the scientific capabilities in the high-growth cell and gene therapy CDMO sector, this acquisition will help Charles River establish itself as a premier scientific partner in this area. Cognate offers technologies serving both commercial and clinical purposes and including assay and process design along with their manufacturing. The R&D and full-scale production capabilities will enhance Charles River Lab’s primarily research and quality testing based business model.

Cognate’s primary area of expertise is in CGMP (current good manufacturing practice) cell therapy production, which processes a variety of cellular products and other starting materials to develop and produce allogeneic (donor-derived) and autologous (patient-derived) cell therapies. Cognate also produces plasmid DNA, a foundational tool used in developing gene-modified cell therapies and gene therapies.

Biopharmaceutical clients seek to drive greater efficiency by working with fewer, trusted partners who have broad, integrated capabilities. The addition of Cognate will complement Charles River’s current, non-clinical capabilities and help provide clients with an integrated solution from basic research through CGMP production.

Cognate will also enhance Charles River’s comprehensive platform of high-growth cell and gene therapy solutions. The addressable market for Cognate’s CDMO services, principally cell therapy, and plasmid production, is currently estimated at approximately $1.5 billion and expected to grow at least 25% annually over the next five years.

Financial Implications

The acquisition is expected to generate attractive financial returns and is expected to be meaningfully accretive to Charles River’s long-term revenue and earnings per share growth. Cognate is expected to generate annual revenue of approximately $140 million in 2021 and grow at least 25% annually over the next five years. This impressive growth rate is supported by general industry trends regarding CDMOs as they take on the role of go-to partners in the drug development of proprietary and specialized biomolecules. The CDMO can effectively become an external R&D department for many companies and can specialize in modular and cutting edge technology that can provide flexibility in production that many small and medium companies can’t afford.

Charles River Labs has only taken on one investor in its history in the form of the NIH, giving them a 34 million dollar grant. The absence of outside investors in the decade since its founding and 28 other acquisitions in that time shows that the firm is in a strong financial position. Additionally, its stock has shot up to $238.59 since May of 2020. Cognate is expected to add approximately $110 million to Charles River’s 2021 consolidated revenue for the partial year.

References

1. https://ir.criver.com/news-releases/news-release-details/charles-river-laboratories-acquire-cognate-bioservices-create

Author

Eduardo Longoria