Charles River to reenter CDMO space in $875m Cognate buy

The proposed acquisition of Cognate BioServices will bring services firm Charles River Laboratories autologous and allogeneic cell therapy, plasmid DNA and viral vector manufacturing capabilities.

The agreement announced yesterday will see Charles River pay $875 million in cash for the contract development and manufacturing organization (CDMO).

Through the deal, Charles River has propelled itself into the manufacturing space, entering a lucrative cell therapy and plasmid production market.

Image: iStock/Vitezslav Vylicil

“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,” CEO Jim Foster said on a conference call with shareholders yesterday.

“Growth is being fueled by the robust biotech funding environment. Approximately $20 billion was invested in cell and gene therapy companies in 2020, fueling the rapid rise of cell and gene therapies in the R&D pipeline, which now total over 2,000 programs. We believe the demand for Cognate services will intensify, as more of these programs progress into late-stage development and commercialization.”

Furthermore, the firm says Cognate will complement its clinical services business, as well as recent acquisitions in the regenerative medicine space. In 2019, Charles River entered the cell therapy materials and leukapheresis space through the $380m acquisition of HemaCare. And in August 2020, the firm added cellular product supplier Cellero.

“Cognate will be highly complementary to our existing nonclinical 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 GMP production,” said Foster.

Cognate itself has grown its presence in the regenerative medicine space, both internally at its Memphis, Tennessee and Baltimore, Maryland cell-based and cell-mediated gene therapy services facilities, and through M&A activity of its own. In November 2019, the firm acquired CDMO Cobra Biologics, adding plasmid DNA and viral vector capabilities from facilities in Keele, UK and Matfors, Sweden. The firm is currently undergoing capacity expansions in both the US and Europe.

CRO to CDMO

Charles River is traditionally a clinical research organization (CRO). But through its M&A activity, the firm has evolved to offer a wide range of research and development services for pharma firms, and this latest deal adds substantial clinical and commercial manufacturing capabilities.

Having acquired WIL Research in 2016, the firm added a small molecule CDMO in the form of QS Pharma. However, the firm turned its back on the CDMO space by divesting that business the following year.

“We had decided that there were some very, very big players [in that space] and it would be difficult for us to achieve scale,” Foster said yesterday, explaining his rationale at staying out of the CDMO space.

But since then, “cell and gene therapy has heated up dramatically,” bringing “an opportunity to make a niche play, in the CDMO space,” he said.

“Our M&A is derived from requests from clients, for products and services that they need that they’d like us to have, either because they trust us more or they’re unable or incapable of getting these, elsewhere.

“So, this feels like it fills a very important gap in the portfolio. I don’t think it would be lethal had we not done this, but it would cause clients to have to go outside to get their drugs manufactured.”

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