Charles River Laboratories
The clinical research organization yesterday said it's purchasing China-based WuXi PharmaTech
Investors are rightfully a little worried that the $2.2 billion Charles River Labs might have a little bit of trouble integrating such a large acquisition. Generic-drug maker Mylan
That's not to say the move won't be a good one in the long run. Outsourcing is all about margins. Do it more cheaply than a drug developer can and you've got the business. Eli Lilly
And what better place to keep costs down than China? Last year, PPD
In addition to lowering margins, the most recent deal makes sense because the companies are focused on different aspects of pharmaceutical outsourcing. Charles River Labs is focused on preclinical and running clinical trials, while WuXi specializes in drug synthesis. There's potential to cross-sell the services to each company's current customers.
Charles River Labs could be a good value play at these beaten-down prices. The acquisition induces further risk, but with it comes the potential for greater rewards.