CRL/AstraZeneca Join Forces

Zacks

Charles River Laboratories International, Inc. (CRL) recently signed a three-year collaboration agreement with AstraZeneca plc (AZN) to work on the latter’s outsourced regulated safety assessment and development drug metabolism and pharmacokinetics (:DMKP).

The agreement is expected to end in 2015. AstraZeneca started transferring projects to Charles River Labs earlier this year, a process that will be completed by early 2013. The incremental sales under the agreement may rise up to 1% of Charles River’s net sales.

We note that Charles River Labs has been pretty active on the deal-making front over the past few months. In August, the company acquired privately held Accugenix, Inc. The acquisition was valued at approximately $17 million. The acquisition has boosted the company’s in vitro (endotoxin and microbial detection/EMD) portfolio.

Erstwhile Accugenix, a world leader in cGMP compliant contract microbial testing services, has provided microbial identification services to various industries including the biopharmaceutical and medical device industries.

Charles River expects the acquisition to have no impact on 2012 earnings, which are expected in the range of $2.60–$2.70 per share. In 2013, the acquired business will account for 1% of sales and be slightly accretive to earnings.

Our Recommendation

We are encouraged by the company’s recent acquisitions and agreements. We believe that the AstraZeneca agreement is a positive move by the company.

Moreover, the Accugenix acquisition is in line with Charles River’s strategy of boosting its vitro business through product extensions and acquisitions over the next few years. We are pleased with the company’s efforts of expanding the in vitro business, which is its fastest growing business.

We currently have a Neutral recommendation on Charles River. The stock carries a Zacks #2 Rank (Buy rating) in the short run.

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