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
Operating income for the three months ended June 28, 2025, decreased 34.0% to $100.1 million from $151.7 million in the prior year, with net income falling 44.1% to $52.7 million. This decline was primarily driven by a substantial increase in amortization expense and higher restructuring and legal costs.
Total revenue saw a modest 0.6% increase for the three months ended June 28, 2025, reaching $1,032.1 million, but a 1.0% decrease for the six months ended June 28, 2025, compared to the prior year. Growth in RMS (up 3.3%) and Manufacturing (up 4.4%) for the quarter was largely offset by a 1.5% decline in the DSA segment.
Net cash provided by operating activities increased significantly to $376.3 million for the six months ended June 28, 2025, up from $323.4 million in the corresponding period of 2024. This improvement was attributed to lower variable compensation payments and favorable timing of payments to suppliers and vendors.
The Board of Directors, in connection with a Cooperation Agreement, has initiated a comprehensive strategic review and evaluation of the Company's business and prospects. This review aims to examine various alternatives to enhance long-term stockholder value, indicating a potential refinement in strategic direction.
The Company supports the FDA's April 2025 announcement of a pilot program to reduce animal testing using New Approach Methodologies (NAMs) and has invested in AI technologies. This demonstrates a strategic pivot towards non-animal based technologies and scientific innovation, including the launch of its Alternative Methods Advancement Project (AMAP).
The Company completed a divestiture of a site in the DSA reportable segment and acquired the remaining 8% equity interest in Vital River for $19.1 million during the six months ended June 28, 2025. This indicates ongoing portfolio management aimed at streamlining operations and consolidating key assets.
Management initiated significant restructuring actions across North America, Europe, and Asia, incurring $56.0 million in charges for the six months ended June 28, 2025, up from $34.9 million in the prior year. These actions, including workforce right-sizing and site consolidation, are expected to yield approximately $225 million in annualized cost savings, with $175 million impacting fiscal year 2025.
In July 2025, the U.S. Department of Justice (DOJ) and U.S. Fish and Wildlife Service (USFWS) investigations into the Company's non-human primate supply chain were closed. This resolution removes a significant legal and operational overhang, demonstrating management's effective handling of a major challenge.
Effective December 29, 2024, management revised the estimated useful lives of machinery and equipment (from 5 to 7 years) and building improvements (from 10 to 15 years). This change reduced depreciation expense by $9.0 million and increased net income by $6.9 million for the six months ended June 28, 2025, reflecting a commitment to accurate financial reporting.
While DOJ/USFWS investigations are closed, the SEC inquiry related to non-human primate sourcing and disclosures remains ongoing. Additionally, a securities class action lawsuit is under appeal, and derivative lawsuits are stayed, indicating continued legal and reputational risks that could result in potential fines or liabilities.
The enactment of new U.S. tariffs on imports from key supply countries like Vietnam, Mauritius, and China, despite some delays, introduces uncertainty. While the Company plans to offset most of the estimated tariffs by passing along these higher costs, they could adversely impact operating margins, supply chain operations, and competitive positioning.
The FDA's new pilot program to reduce animal testing using New Approach Methodologies (NAMs) could, in the long term, reduce demand for traditional animal research services. While the Company is investing in NAMs, a rapid shift could materially adversely affect its business, results of operations, or financial condition if not adequately managed.
Charles River Laboratories positions itself as a leading, full-service, non-clinical global drug development partner with a broad portfolio of products and services. This integrated approach, supporting clients from target identification through non-clinical development and manufacturing, provides a competitive advantage in reducing client costs and increasing speed to market.
Despite lower volumes in the DSA segment due to cautious client spending, the Company was able to partially offset revenue declines through increases in pricing of its offerings. This suggests some degree of pricing power, even in a soft demand environment, helping to mitigate the impact of reduced client spending.
The DSA segment, a significant revenue contributor, experienced a 1.5% revenue decrease for the three months and a 1.8% decrease for the six months ended June 28, 2025. This was primarily due to lower volume driven by continued cautious client spending from biopharmaceutical and biotechnology clients, indicating competitive pressures or a challenging market environment for this segment.
The Company incurred $32.2 million in restructuring costs for the three months ended June 28, 2025, a substantial increase from $17.9 million in the prior year. These costs, including severance, asset impairments, and site consolidation charges, are part of a broader effort to optimize the global footprint and drive greater operating efficiency.
Operating income across DSA and Manufacturing segments was significantly impacted by accelerated amortization expense, particularly in CDMO due to the loss of key customers, and higher third-party legal and advisory costs related to investigations. Manufacturing operating income decreased 67.6% for the quarter, while DSA decreased 11.3%.
Management anticipates approximately $225 million in annualized cost savings from current and planned restructuring actions, with about $175 million expected to impact fiscal year 2025. This forward-looking statement indicates a clear strategy to improve operational efficiency and profitability in the coming periods.
Charles River is actively investing in and supporting the development of NAMs, such as organ-on-a-chip systems and computational modeling, and AI technologies to reduce animal testing in preclinical safety studies. This proactive stance aligns with evolving regulatory landscapes and scientific advancements.
The Company's strategy includes exploring new technologies to refine and potentially reduce the use of animal models, emphasizing the development of new in vitro and in silico methods. This aims to increase the translation from early-stage discovery to human studies, improving overall drug development efficiency and speed to market.
The decrease in intangible assets, primarily due to accelerated amortization of certain CDMO client relationships ($35.5 million for the three months ended June 28, 2025), indicates a shift or loss of key customers in that area. This highlights the dynamic nature of client relationships and the need for continuous innovation to retain and acquire new business.
The Company repurchased $350.0 million of common stock under its $1.0 billion authorization during the six months ended June 28, 2025, with $549.3 million remaining on the program. This substantial repurchase activity indicates management's belief in the intrinsic value of its shares and commitment to returning capital to shareholders.
Capital expenditures decreased to $94.6 million for the six months ended June 28, 2025, down from $118.6 million in the prior year. This reduction reflects disciplined spend management in light of the global economic environment, balancing growth investments with financial prudence.
Long-term debt, net and finance leases increased to $2.33 billion as of June 28, 2025, from $2.24 billion at December 28, 2024. This increase, alongside net proceeds from the Credit Facility, indicates the Company's reliance on debt financing to fund working capital needs, capital expansion, and other strategic activities.
The Company actively supports the FDA's initiatives to reduce animal testing and has launched its Alternative Methods Advancement Project (AMAP), dedicated to developing alternatives to animal testing. This demonstrates a commitment to the 'Replacement, Reduction, and Refinement' (3Rs) initiative and the responsible use of animals in biomedical research.
The closure of DOJ/USFWS investigations into NHP shipments, while still facing an SEC inquiry and related lawsuits, highlights the Company's ongoing efforts to address ethical sourcing and compliance within its supply chain. This indicates a focus on resolving past issues and strengthening governance practices.
Management concluded that the Company's disclosure controls and procedures are effective as of June 28, 2025, at a reasonable assurance level. This indicates sound governance practices in financial reporting and compliance with SEC regulations, providing assurance on the quality of disclosed information.
The DSA segment experienced revenue declines of 1.5% for the three months and 1.8% for the six months ended June 28, 2025, primarily due to lower volume driven by continued cautious client spending. This reflects the broader macroeconomic environment where biopharmaceutical and biotechnology clients are reassessing budgets and reprioritizing drug pipelines.
The U.S. government's enactment of new tariffs on imports from key supply countries like Vietnam, Mauritius, and China, along with potential retaliatory actions, creates an uncertain trade environment. While the Company plans to pass on higher costs, these tariffs could impact its operating margin and supply chain operations.
The FDA's announcement of a pilot program to reduce animal testing using New Approach Methodologies (NAMs) signifies a significant regulatory shift. This trend, while aligned with the Company's innovation strategy, could reshape demand for traditional services and requires continuous adaptation to maintain competitive relevance.