Charles River Laboratories (CRL), the US-based provider of drug discovery and development services, has filled out its portfolio with upstream in vitro capabilities by agreeing to acquire the contract-research services division of Galapagos NV.
Acquiring the Belgian company’s Argenta and BioFocus businesses for a total cash consideration of up to €134 million will make CRL the only contract research organization that can offer clients integrated in vitro and in vivo drug-discovery and early-stage development capabilities from target discovery through to preclinical development, it says.
For Galapagos, the deal marks its transition to the next phase of corporate evolution, repositioning from a hybrid drug-discovery service and pipeline company into a research and development-based biotechnology concern focusing on innovative drugs for unmet medical needs.
The transaction is subject to the usual closing conditions and is expected to be tied up early in the second quarter of 2014.
Under the definitive agreement between CRL and Galapagos, Charles River is acquiring the service operations of BioFocus and Argenta in the UK and the Netherlands respectively, including client contracts, order pipelines, premises, equipment and further obligations.
All of the BioFocus and Argenta employees will transfer to the Charles River organisation on completion of the deal. Specifically, the transaction will add more than 340 scientists, 150 of them PhDs, to CRL’s workforce.
David Smith – currently chief executive officer (CEO) of Galapagos Services – will continue to lead BioFocus and Argenta, joining Charles River as corporate vice president, In Vitro Discovery Services.
Galapagos is retaining target-discovery and assay-development capabilities in Leiden, the Netherlands, for its R&D and alliance operations, as well as Fidelta, a fee-for-service operation based in Zagreb, Croatia.
Charles River has agreed to pay Galapagos €129 million upfront in cash for BioFocus and Argenta, which it describes as global leaders in integrated drug-discovery services, with a predominant focus on in vitro capabilities.
The deal also includes future performance payments of up to €5 million, based on the service division achieving an unspecified revenue target 12 months after closing.
In 2013, BioFocus and Argenta generated combined sales of €63 million, while sales growth rate for the two businesses together is expected to be around 10% in 2014.
The purchase price implies a multiple of roughly two times 2013 sales and 12 times adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for the same year.
Based on the anticipated timetable for closing, the acquisition is expected to add approximately 6% to Charles River’s net sales and US$0.10 to non-GAAP (Generally Accepted Accounting Principles) earnings per share in 2014.
Galapagos said the deal would afford Charles River further vertical integration into a
high-growth outsourcing area, one that was fully complementary to CRL’s existing offering and in line with its declared growth strategy.
As James Foster, chairman, president and CEO of Charles River Laboratories, explained, this strategy includes building a broader portfolio of essential products and services to support the drug discovery and development continuum, as well as the increasing “virtualiation” of the biopharmaceutical industry.
Argenta and BioFocus’s upstream in vitro capabilities make “an excellent fit with our in vivo expertise, and will enable us to engage with our clients earlier in the drug discovery process”, Foster commented.
“This enhances the value we can provide to our clients because it allows them to outsource integrated drug discovery and early-stage development programmes to a single provider,” he added.
Argenta and BioFocus provide a full suite of drug-discovery services, from target discovery through to delivery of clinic-ready candidates, to a broad range of pharmaceutical and biotechnology companies, CRL noted.
The acquired businesses’ in vitro expertise includes medicinal chemistry, target discovery and complex in vitro biology, as well as therapeutic-area expertise in respiratory diseases, inflammation, oncology and central nervous-system disorders.
CRL acknowledged there was some overlap in the three businesses’ global biopharmaceutical clients but believes there is an opportunity to step up input to these clients based on the strength of the company’s strategic relationships.
Moreover, Charles River has a much larger base of clients that do not work with Argenta and BioFocus, where it can leverage relationships to introduce the acquired businesses’ extensive discovery capabilities.
In terms of the composite value proposition, Charles River has already been selected by a number of large biopharmaceutical companies as a strategic partner, while the acquisition aligns with a trend to outsource full-service drug discovery and early-stage development, it noted.
At the same time, clients looking to achieve R&D efficiencies and boost pipeline productivity are taking earlier go/no go decisions, which CRL will be in a stronger position to support with its newly expanded testing capabilities.