Editor's Note: This article was originally published on Real Money on May 3. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money.
NEW YORK (Real Money) -- If you want to do basic research to develop all new molecules to conquer diseases that can't easily be conquered, chances are you'll have to hire Charles River Labs (CRL) to do the testing. This company can do it faster and more cheaply than anyone else can. It is the acknowledged leader, and no one can dispute that.
But you also can't dispute that Charles River had a weak quarter -- and that a lot of that weakness stemmed from big pharmaceutical companies' unwillingness to spend to develop new molecules that may or may not succeed in conquering a hard-to-beat disease.
On Thursday, when I interviewed Jim Foster, the CEO of Charles River, I realized that I was talking to the flip side of the multi-billion-dollar buybacks and dividend boosts at big pharma. This money they are spending on Wall Street, I believe, would be best spent at Charles River. In this case, they'd be getting the "go-no go" of new prospects, an incredibly expensive process. This is something that Allergan (AGN) confirmed when it acknowledged how expensive it is to test new drugs on a miss that it had for a new macular degeneration drug.Instead, what many of these big pharmaceuticals are doing is strictly harvesting what is there, what is known, what is in Phase 3. They're not doing the basic stuff that could or could not product drugs in 2018. Contrast that with the other cohort that chooses Charles River -- the biotech companies. While their spending is sometimes inconsistent, it's nothing they would ever scrimp and save on. These companies are risk-takers that are always rolling the dice on something new. They aren't trying to husband resources, fire people, close down facilities or do anything else necessary to make Wall Street's numbers. Is it any wonder, really, what Wall Street wants? Eli Lilly (LLY), Bristol-Myers (BMY), Pfizer (PFE) and Merck (MRK) are doing well because they are the equivalent of bonds with higher coupons. In addition to those names, the big winners are Gilead Sciences (GILD), Celgene (CELG), Biogen Idec (BIIB) and Regeneron (REGN) -- all huge risk-takers with healthy pipelines.
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