– Significantly Expands Charles River’s
Scientific Capabilities in the High-Growth Cell and Gene Therapy
Sector –
– Combines Cognate’s Comprehensive Cell and
Gene Therapy CDMO Capabilities to Establish an Integrated Solution
from Discovery through CGMP Manufacturing –
Charles River Laboratories International, Inc. (NYSE: CRL)
announced today that it has signed a definitive agreement to
acquire Cognate BioServices, Inc., a premier, cell and gene therapy
contract development and manufacturing organization (CDMO), for
approximately $875 million in cash, subject to customary closing
adjustments. The transaction is expected to close by the end of the
first quarter of 2021, subject to regulatory requirements and
customary closing conditions.
James C. Foster, Chairman, President and Chief Executive Officer
of Charles River Laboratories, commented, “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.
This acquisition will be an exceptional strategic fit, adding to
our comprehensive suite of early-stage research and manufacturing
support solutions and enabling us to achieve our goal of
establishing a single scientific partner to provide
biopharmaceutical clients with an integrated solution to help
accelerate their cell and gene therapy programs from discovery and
non-clinical development through commercialization.”
“Because of the synergistic fit with Charles River, the market
growth potential, and the emerging role of advanced drug modalities
as treatments for oncology and rare disease, we believe Cognate
will meaningfully enhance our long-term revenue and earnings growth
potential. We look forward to welcoming Cognate’s dedicated
employees to the Charles River family,” Mr. Foster concluded.
Cognate is a premier, cell and gene therapy CDMO offering
comprehensive manufacturing solutions for cell therapies, as well
as for production of plasmid DNA and other inputs in the CDMO value
chain. The planned acquisition will establish Charles River as a
premier scientific partner for cell and gene therapy development,
testing, and manufacturing, providing clients with an integrated
solution from basic research and discovery through CGMP production.
Cognate has extensive experience producing various cell types and
technologies used in cellular immunotherapy and immuno-oncology,
regenerative medicine, and advanced cell therapy. Headquartered in
Memphis, Tennessee, Cognate has operations in North America and
Europe with over 500 employees.
Strategic Rationale
The acquisition of Cognate will expand Charles River’s
scientific capabilities into the emerging, high-growth cell and
gene therapy CDMO sector, establishing a comprehensive solution
from discovery and non-clinical development through CGMP
manufacturing in advanced drug modalities.
- Expands Scientific Expertise into Major CDMO Platforms for
Cell and Gene Therapies – Cognate offers its clients a broad
portfolio of cell and gene therapy solutions across the major CDMO
platforms, enhancing its ability to meet its clients’ evolving
scientific needs. Its primary area of expertise is in CGMP cell
therapy manufacturing, 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, which is a
foundational tool used in the development of gene-modified cell
therapies and gene therapies, as well as other CDMO inputs.
- Complements Charles River’s existing portfolio and
establishes a premier scientific partner for the development,
testing, and manufacturing of advanced drug modalities –
Biopharmaceutical clients are seeking to drive greater efficiency
and leverage scientific benefits by working with fewer, trusted
partners who have broad, integrated capabilities. The addition of
Cognate will be complementary to Charles River’s existing,
non-clinical capabilities, establishing a premier scientific
partner for cell and gene therapy development, testing, and
manufacturing, and providing clients with an integrated solution
from basic research through CGMP production. Cognate will be
particularly synergistic with the Company’s Biologics Testing
Solutions business. It will enable clients to seamlessly conduct
analytical testing, process development, and manufacturing for
advanced modalities with the same scientific partner, enabling them
to achieve their goal of driving greater efficiency. Clients will
also have access to the Company’s cellular products as the starting
point for their cell therapy programs and will be able to work with
Charles River through every step of the research and early-stage
development process before moving into CGMP production with
Cognate, accelerating clients’ speed to market for advanced drug
modalities.
- Enhances Charles River’s growth potential with increased
exposure to a high-growth market sector – Cognate will
immediately enhance Charles River’s growth potential by expanding
its 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. With a significant
portion of cell and gene therapy programs in the preclinical phase,
demand for Cognate’s services is expected to intensify as more of
these programs progress into late-stage development and
commercialization.
- Expected to drive profitable growth and shareholder value
– The acquisition is expected to generate attractive financial
returns that are consistent with Charles River’s disciplined
investment criteria. It is also 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 is expected to grow at
least 25% annually over the next five years.
Additional Financial and Transaction
Details
Based on the anticipated completion of the acquisition by the
end of the first quarter, Cognate is expected to add approximately
$110 million to Charles River’s 2021 consolidated revenue for the
partial year. The transaction is expected to be neutral to non-GAAP
earnings per share in 2021, and accretive thereafter. Items
excluded from non-GAAP earnings per share are expected to include
all acquisition-related costs, which primarily include amortization
of intangible assets, advisory fees, certain costs associated with
efficiency initiatives, and certain third-party integration
costs.
The acquisition and associated fees are expected to be financed
through Charles River’s existing credit facility and cash. The
Company is evaluating further optimizing its debt structure which
could be used to finance the acquisition and for general corporate
purposes.
Cognate is expected to be reported as part of Charles River’s
Manufacturing Support segment.
Advisors and Cognate
Ownership Gordon Dyal & Co., LLC is acting as the
exclusive financial advisor to Charles River. Davis Polk
& Wardwell LLP is acting as Charles River’s transactional legal
counsel, and Weil, Gotshal & Manges LLP is acting as antitrust
counsel. Dark Horse Consulting Group, Inc. is acting as
Charles River’s strategic advisor.
Cognate is supported by its majority shareholder, EW Healthcare
Partners, as well as minority shareholders, Medivate Partners,
BlackRock, and a sovereign wealth fund. Morgan Stanley &
Co. LLC is acting as the exclusive financial advisor and Kirkland
& Ellis LLP is acting as legal counsel to Cognate and its
shareholders.
Use of Non-GAAP Financial
Measures
This news release contains non-GAAP financial measures, such as
non-GAAP earnings per diluted share, which exclude the amortization
of intangible assets, integration costs, advisory fees, and other
charges related to our acquisitions and expenses associated with
evaluating acquisitions. We exclude these items from the non-GAAP
financial measures because they are outside our normal operations.
There are limitations in using non-GAAP financial measures, as they
are not prepared in accordance with generally accepted accounting
principles, and may be different than non-GAAP financial measures
used by other companies. In particular, we believe that the
inclusion of supplementary non-GAAP financial measures in this news
release helps investors to gain a meaningful understanding of our
core operating results and future prospects without the effect of
these often-one-time charges, and is consistent with how management
measures and forecasts the Company's performance, especially when
comparing such results to prior periods or forecasts. We believe
that the financial impact of our acquisitions (and in certain
cases, the evaluation of such acquisitions, whether or not
ultimately consummated) is often large relative to our overall
financial performance, which can adversely affect the comparability
of our results on a period-to-period basis. In addition, certain
activities, such as business acquisitions, happen irregularly and
the underlying costs associated with such activities do not recur
on a consistent basis. Non-GAAP results also allow investors to
compare the Company’s operations against the financial results of
other companies in the industry who similarly provide non-GAAP
results. The non-GAAP financial measures included in this news
release are not meant to be considered superior to or a substitute
for results of operations prepared in accordance with GAAP. The
Company intends to continue to periodically assess the potential
value of reporting non-GAAP results consistent with applicable
rules and regulations. A reconciliation of the effect of this
transaction on non-GAAP earnings per share for 2021 to the most
directly comparable GAAP financial measure has not been included
because it is impracticable to determine the allocation of the
purchase price for the proposed acquisition and other necessary
adjustments at this time.
Caution Concerning Forward-Looking
Statements
This news release includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by the use of words
such as “anticipate,” “believe,” “expect,” “will,” “may,”
“estimate,” “plan,” “outlook,” and “project” and other similar
expressions that predict or indicate future events or trends or
that are not statements of historical matters. Forward-looking
statements include statements in this news release regarding the
acquisition of Cognate BioServices, expectations regarding the
timing of the closing of the acquisition, and Charles River’s
expectations with respect to the impact of Cognate on the Company,
its product and service offerings, client perception, revenue,
revenue growth rates, and earnings per share; Charles River’s
projected future performance including revenue and earnings per
share; as well as Charles River’s future growth in the area of cell
and gene therapy CDMO services. Forward-looking statements are
based on Charles River’s current expectations and beliefs, and
involve a number of risks and uncertainties that are difficult to
predict and that could cause actual results to differ materially
from those stated or implied by the forward-looking statements.
Those risks and uncertainties include, but are not limited to, the
ability to successfully complete the acquisition of Cognate, our
ability to successfully integrate Cognate, and risks and
uncertainties associated with Cognate’s products and services which
are in areas in which Charles River does not currently operate. A
further description of these risks, uncertainties, and other
matters can be found in the Risk Factors detailed in Charles
River's Annual Report on Form 10-K as filed on February 11, 2020
and the Quarterly Report on Form 10-Q as filed on October 29, 2020,
as well as other filings we make with the Securities and Exchange
Commission. Because forward-looking statements involve risks and
uncertainties, actual results and events may differ materially from
results and events currently expected by Charles River, and Charles
River assumes no obligation and expressly disclaims any duty to
update information contained in this news release except as
required by law.
About Charles River
Charles River provides essential products and services to help
pharmaceutical and biotechnology companies, government agencies and
leading academic institutions around the globe accelerate their
research and drug development efforts. Our dedicated employees are
focused on providing clients with exactly what they need to improve
and expedite the discovery, early-stage development and safe
manufacture of new therapies for the patients who need them. To
learn more about our unique portfolio and breadth of services,
visit www.criver.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20210217005511/en/
Investor Contact: Todd Spencer Corporate Vice President,
Investor Relations 781.222.6455 todd.spencer@crl.com
Media Contact: Amy Cianciaruso Corporate Vice President, Public
Relations 781.222.6168 amy.cianciaruso@crl.com
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