Charles River Laboratories plans to acquire the cell and gene therapy contract development and manufacturing organization (CDMO) Cognate BioServices for approximately $875 million cash, in a deal that further expands the buyer’s activity in the fast-growing sector.
Headquartered in Memphis, TN, Cognate produces various cell types and technologies used in cellular immunotherapy and immuno-oncology, regenerative medicine, and advanced cell therapy. Cognate specializes in cGMP cell therapy manufacturing, which processes a variety of cellular products and other starting materials to develop and produce allogeneic and autologous cell therapies.
Cognate also offers cell therapy manufacturing solutions designed to be comprehensive, as well as solutions for the production of plasmid DNA and other CDMO value chain components.
Privately-held Cognate was established in 2002 in Baltimore, and has since grown to more than 500 employees, with operations in North America and Europe.
Charles River reasons that in acquiring Cognate, it can provide its clients with an integrated solution from basic research and discovery through cGMP production, thus positioning itself as a premier scientific partner for cell and gene therapy development, testing, and manufacturing.
Cognate’s operations are expected to complement those of Charles River’s Biologics Testing Solutions business, allowing clients to seamlessly conduct analytical testing, process development, and manufacturing for advanced modalities with the same scientific partner, therefore achieving greater efficiency.
In addition, Cognate’s clients will have access to Charles River cellular products as a starting point for their cell therapy programs and can work with Charles River through every step of their research and early-stage development process before moving into CGMP production with Cognate, accelerating clients’ speed to market for advanced drug modalities.
Charles River cited an estimate that the addressable market for Cognate’s CDMO services, primarily cell therapy and plasmid production, is approximately $1.5 billion and expected to grow at least 25% annually over the next five years.
Demand for Cognate’s services is expected to intensify, Charles River also projects, as cell and gene therapy programs now in preclinical phases advance into the clinic and toward commercialization.
Expanding in cell therapy
The Cognate acquisition comes just two months after Charles River agreed to expand its presence in cell therapy by acquiring HemaCare for $380 million. That deal, completed on January 3, enabled Charles River to offer cell therapy developers and manufacturers a solution taking them from basic research through commercialization.
“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,” Charles River Laboratories chairman, president, and CEO James C. Foster said yesterday in a statement. “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.”
Charles River said its acquisition of Cognate is expected to add “meaningfully” to its 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, Charles River added.
Charles River’s acquisition of Cognate is expected to close by the end of the first quarter, subject to regulatory requirements and customary closing conditions.
Once that occurs, 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 add to non-GAAP EPS each year thereafter. Non-GAAP earnings per share excludes all acquisition-related costs, which primarily include amortization of intangible assets, advisory fees, certain costs associated with efficiency initiatives, and third-party integration costs.
Charles River said it expects to finance its purchase of Cognate and associated fees through its existing credit facility and cash. The company is evaluating further optimizing its debt structure to finance the acquisition, as well as for general corporate purposes.
“Exceptional strategic fit”
“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 nonclinical development through commercialization,” Foster added.
Charles River expects to report Cognate results as part of its Manufacturing Support segment. According to financial results released yesterday, the Manufacturing Support segment finished 2020 with $515.4 million in revenue, up 10.8% from $465.1 million in 2019. The revenue figure includes $139.3 million in fourth quarter 2020 revenue, up 15.5% from $120.6 million in Q4 2019.
Companywide, Charles River finished 2020 with net income of $364.3 million, up 44.6% from $252 million in 2019, on revenue that climbed 11.5% year-over-year, to $2.92 billion from $2.62 billion. During the fourth quarter of 2020, Charles River racked up $143.2 million in net income attributable to common shareholders, up 78.2% from $80.3 million in Q4 2019, based on revenue that rose 14% from the year-ago quarter, to $791 million from $691.1 million.
Charles River finished Q4 2020 by acquiring Distributed Bio, its collaboration partner of more than two years, for up to $104 million. Distributed Bio is a next-generation antibody discovery company whose SuperHuman™ antibody libraries and integrated antibody optimization technologies are designed to facilitate delivering high-quality, readily formattable antibody fragments to support antibody and cell and gene therapy candidates to biopharma clients.