Charles River to acquire MPI Research for $800M, posts 10% 2017 revenue growth

Following the recent acquisitions of Brains On-Line and KWS BioTest, Charles River Laboratories is once again mobilizing its M&A war chest, taking in nonclinical contract research organization MPI Research for about $800 million in cash.

“MPI is an exceptional strategic fit for Charles River because it incorporates the key attributes we require in an acquisition: access to growing end markets, high-quality services, scientific expertise, and complementary capabilities,” said James Foster, chairman and CEO of Charles River, in a statement.

As an early-stage drug development CRO, MPI has attracted a strong client base in small and midsized biotechs, a market segment Charles River is seeing fast growth from. Charles River said the acquisition will expand its existing testing services in toxicology, including ophthalmology, juvenile toxicity, molecular biology and medical device testing, and MPI’s 1 million-square-foot facility in Michigan also provides additional infrastructure for future growth need.

The purchase price of $800 million—subject to closing adjustments—represents a 11.7 multiple of non-GAAP EBITDA based on the company’s 2017 results. For the past year, MPI is said to have generated revenue of about $240 million. Given that the transaction will likely close in the second quarter, Charles River expects the deal will add $170 million to $190 million to its 2018 revenue, and $260 million to $280 million next year.

Charles River announced the MPI deal alongside its full-year 2017 results. With the fourth quarter’s $478.5 million revenue from continuing operations, the CRO reported a revenue increase by 10.5% to $1.86 billion in 2017, whereas organic revenue growth was 6.7%. With its unique early-stage portfolio, Charles River said it had worked on 34 of the 46 new drugs FDA approved in 2017.

Despite several new features added to its cancer research models, Charles River still reported a slight 0.1% dip from the research models and services (RMS) sector, caused by declining demand from big biopharma companies. But during the earnings call Tuesday morning, Foster still reaffirmed investors the company’s long-term target of low-single-digit revenue growth for RMS, driven by significant growth opportunities from China.

Since it acquired Vital River, the premier provider of RMS in China, in 2013, that particular business has been growing at double-digit rates. Toward the end of 2017, the CRO completed a new production facility in Shanghai and began commercial shipments early this year, said Foster.

The good news came from the discovery and safety assessment (DSA) business, which turned in $980.0 million for 2017, an increase of 17.1% compared to 2016. The manufacturing support segment also saw revenue increase of 9.5% to reach $384.0 million. Foster said the number of biologics and biosimilars in development has led to a rapid increase in demand for its manufacturing services, especially as many such drugs are being developed by biotechs that don’t have internal manufacturing infrastructure.

For 2018, including the impact of MPI, Charles River expects revenue growth of around 16% to 18%, with non-GAAP EPS estimated at $5.67-$5.82.

Two internal executive management appointments were also made Tuesday. Davide Molho, recently the head of global research models & services, safety assessment and biologics, has become president and COO. Birgit Girshick, who recently led the global discovery services after the integration of WIL Research, has been promoted to EVP of discovery and safety assessment.

The company said in a statement that realigning management of the discovery and safety assessment businesses under one leadership “will enable Charles River to better leverage the synergies between the two related units and enhance the extensive services provided to clients.”

Since both executives have spent more than two decades with the firm, Foster said during the call that the appointments provide a desired executive structure that put the company on a preset path to nearly double its size in the next five years.