Healthcare
Diagnostics & Research
$9.69B
22K
Charles River Laboratories International, Inc. provides drug discovery, non-clinical development, and safety testing services in the United States, Europe, Canada, the Asia Pacific, and internationally. It operates through three segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Solutions (Manufacturing). The RMS segment produces and sells rodents, and purpose-bred rats and mice for use by researchers. This segment also provides a range of services to assist its clients in supporting the use of research models in research and screening pre-clinical drug candidates, including research models, genetically engineered models and services, insourcing solutions, and research animal diagnostic services. The DSA segment offers early and in vivo discovery services for the identification and validation of novel targets, chemical compounds, and antibodies through delivery of preclinical drug and therapeutic candidates ready for safety assessment; and safety assessment services, such as toxicology, pathology, safety pharmacology, bioanalysis, drug metabolism, and pharmacokinetics services. The Manufacturing segment provides in vitro methods for conventional and rapid quality control testing of sterile and non-sterile pharmaceuticals and consumer products. This segment also offers specialized testing of biologics that are outsourced by pharmaceutical and biotechnology companies. It also provides contract vivarium operation services to biopharmaceutical clients. The company was founded in 1947 and is headquartered in Wilmington, Massachusetts.
Key insights and themes extracted from this filing
Total revenue decreased by 1.7% to $1,011.6 million compared to $1,029.4 million in the prior year period. The decrease was primarily due to lower volume in the DSA business, partially offset by growth in RMS and Manufacturing.
Operating income decreased by 25.0% to $126.0 million, and operating margin declined to 12.5% compared to 16.3% in the prior year period. This was primarily due to lower revenue, higher staffing and operating costs, and restructuring charges.
Net income attributable to common shareholders decreased to $73.0 million from $103.1 million in the prior year period. This was primarily due to the decrease in operating income, partially offset by higher net gains on investments.
RMS revenue increased due to higher large research model product revenue, primarily from the recent acquisition of Noveprim, which contributed $15.1 million. The acquisition strengthens and diversifies the supply chain for the DSA segment.
DSA revenue decreased primarily due to decreased revenue in our Safety Assessment and Discovery Services businesses due to decreased volume, as well as the impact of a recently divested site related to our Safety Assessment business, which decreased revenue by $2.9 million.
Manufacturing revenue increased due primarily to increased revenue in both our Biologics Solutions and Microbial Solutions businesses, driven by increased volume for Biologics Testing service revenue, CDMO service revenue, and Microbial Solutions endotoxin product revenue.
The company has undertaken restructuring actions impacting the reportable segments at various locations across North America, Europe and Asia. This includes workforce right-sizing actions resulting in severance and transition costs; and costs related to the consolidation of facilities resulting in asset impairment and accelerated depreciation charges.
Restructuring charges recognized during the three months ended March 30, 2024 were approximately $17 million. The company expects that these effectuated actions as well as other upcoming planned actions will result in approximately $70 million of cost savings on an annualized basis.
The company is cooperating with the DOJ and USFWS and believes that the concerns raised with respect to the Company's conduct are without merit. The company maintains a global supplier onboarding and oversight program incorporating risk-based due diligence, auditing, and monitoring practices to help ensure the quality of our supplier relationships and compliance with applicable U.S. and international laws and regulations.
The company is subject to ongoing investigations by the DOJ, USFWS, and SEC related to non-human primate sourcing, which could result in potential fines, penalties, or liabilities. The company cannot predict the timing, outcome, or possible impact of the investigations.
The company is defending against a securities class action and a derivative lawsuit related to disclosures about non-human primate sourcing practices. The company believes the actions are without merit but cannot reasonably estimate the maximum potential exposure or range of possible loss.
The company's reliance on non-human primates is a risk factor, as investigations into the supply chain could impact the availability and cost of these animals, which are critical for certain research activities. The company has voluntarily suspended future shipments of non-human primates from Cambodia to the United States.
The DSA segment experienced a revenue decrease due to decreased volume in Safety Assessment and Discovery Services. This suggests increased competition and/or changing market dynamics in this segment.
The RMS segment's revenue growth was driven by the Noveprim acquisition, indicating a successful strategy of expanding market share through acquisitions. This acquisition strengthens and diversifies the supply chain for the DSA segment.
The Manufacturing segment's revenue increased due to increased volume in both Biologics Solutions and Microbial Solutions businesses, indicating a growing market presence in these areas.
The company has undertaken restructuring actions, including workforce right-sizing and facility consolidation, to improve operational efficiency and reduce costs. These actions are expected to result in approximately $70 million of cost savings on an annualized basis.
Despite restructuring efforts, increased staffing and operating costs across all businesses negatively impacted profitability. This suggests that further operational improvements are needed to offset these cost pressures.
The Noveprim acquisition strengthens and diversifies the supply chain for the DSA segment, reducing reliance on single suppliers and improving supply chain resilience.
The acquisition of SAMDI Tech provides clients with seamless access to the premier, label-free HTS MS platform and create a comprehensive, library of drug discovery solutions.
The Manufacturing segment's revenue increase was driven by increased volume for Biologics Testing service revenue, indicating continued investment and growth in this area.
The company's Manufacturing segment includes Microbial Solutions, which provides in vitro lot-release testing products, microbial detection products, and species identification services. This indicates a focus on non-animal testing methods.
The company has deployed significant capital towards acquisitions, including Noveprim and SAMDI Tech, to expand its service offerings and market presence.
During the three months ended March 30, 2024, the company did not repurchase any shares under its stock repurchase program. As of March 30, 2024, $129.1 million remained authorized for repurchases. This may indicate a shift in capital allocation priorities.
A primary use of cash in investing activities related to capital expenditures to support the growth of the business.
The company's Manufacturing segment includes Microbial Solutions, which provides in vitro lot-release testing products, microbial detection products, and species identification services. This indicates a focus on non-animal testing methods.
The company maintains a global supplier onboarding and oversight program incorporating risk-based due diligence, auditing, and monitoring practices to help ensure the quality of our supplier relationships and compliance with applicable U.S. and international laws and regulations.
The company's board of directors is committed to strong corporate governance practices. The company's code of business conduct and ethics promotes ethical behavior and compliance with applicable laws and regulations.
The company operates on a global basis and is exposed to foreign currency exchange rate fluctuations, which can affect its financial position, results of operations, and cash flows.
The DSA segment experienced a revenue decrease due to decreased volume in Safety Assessment and Discovery Services, suggesting a potential impact from the current economic downturn.
The company is subject to ongoing investigations by the DOJ, USFWS, and SEC related to non-human primate sourcing, which could lead to regulatory changes and increased compliance costs.