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Buyout will give life sciences firm foothold in China

Charles River Labs to expand into drug discovery services

By Robert Weisman
Globe Staff / May 25, 2010

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WILMINGTON — Charles River Laboratories International Inc. hopes to join the ranks of top life sciences players by using the buyout of a Chinese company to offer more services to drug makers, its chief executive said yesterday.

But the $1.6 billion acquisition of WuXi PharmaTech Inc., expected to be completed this fall, will bring only “incremental’’ growth to the sprawling 68-acre Charles River Labs complex here, he said. The company has about 850 employees at its corporate headquarters, an animal diagnostic lab, and more than a dozen buildings for breeding mice and rats on former dairy farm land north of Boston.

James C. Foster, Charles River chief executive, said the purchase of WuXi (pronounced woo-shee) will drive his company’s expansion in two ways.

It will give Charles River a foothold in China, which is expected eventually to become the second-largest global biopharmaceutical market, after the United States. WuXi, run by US-educated Chinese entrepreneurs, is based in Shanghai.

The acquisition will also add a third business — drug discovery services — to Charles River, which has long been focused on breeding and supplying lab animals for biomedical research and providing preclinical services to the world’s biggest drug and biotech firms.

“The reality is that most of our large clients are congealing; they’re taking infrastructure out,’’ Foster said. “But the work still has to be done. We’ve reached the point where our internal capabilities exceed those of our clients. They can use us as an adjunct to their own facilities and people.’’

Consolidation has accelerated in the pharmaceutical industry over the past year, with Pfizer Inc. purchasing Wyeth Pharmaceuticals, Merck & Co. acquiring Schering-Plough Corp., and Roche Holdings AG snapping up Genentech Inc. Those deals have led to thousands of job cuts — Pfizer last week said it would eliminate 6,000 positions worldwide, including 300 in Andover — and created an opportunity for “contract research organizations’’ such as Charles River to pick up the slack.

“There’s definitely an increase in specialization, on focusing on what things you’re going to do best,’’ said John A. Gordon, partner at Putnam Associates, a life sciences consulting firm in Burlington. “The large pharma companies are masters of marketing, sales, and late-stage product development. And they might outsource in other areas.’’

For the 63-year-old Charles River, which has about 8,000 employees in 18 countries, the industry consolidation presents an opening to move up the food chain in a business where it has known primarily for breeding mice for clients testing drugs to treat everything from cancer to diabetes.

WuXi, with about 4,000 workers, makes chemicals for drug testing and conducts early-stage tests for global drug makers. That business, unlike animal breeding and the kind of preclinical work Charles River does, has largely moved to China over the past decade. And that is where the majority of Charles River’s growth is likely to be in coming years, at least in its drug discovery business.

“For some period of time, there’ll be a wage benefit to using Chinese labor,’’ Foster said. “The labor is plentiful, cheaper, and better educated than in the States. It pains me to say so, but it’s true.’’

Foster is scheduled to ring the opening bell on the New York Stock Exchange on June 23, when the company marks its 10th anniversary on the Big Board. Its shares closed yesterday at $31.71, down 60 cents, or 1.8 percent.

Robert Weisman can be reached at weisman@globe.com.