Former director at Charles River Laboratories International Inc
- Charles River’s (NYSE: CRL) consolidation and investment strategy into niche analytical groups including transition to non-animal in vitro and on-a-chip models
- Charles River’s quality and reputation among regulatory agencies and potential effects of recent FDA and EPA (Environmental Protection Agency) announcements on animal testing
- Charles River’s service breakdown and assessment of the following segments – DSA and RMS – touching upon their strengths, gaps and positioning within each segment
- Trickle-down effect of recent biotech funding slowdown and inflation on Charles River and additional supply chain issues
- Competitive positioning and one-stop-shop system benefits
- Q3 2022 outlook and future M&A and geographical expansion strategies to bolster growth
Can you discuss the significant shifts in the CRO [contract research organisation] industry and demand for DSA [discovery and safety assessment] services in non-animal in vitro models? How much organic and top-line growth have you witnessed in the past year?
How would you assess Charles River Laboratories’ ability to understand its customers’ needs to develop compounds and get them to the FDA and public as soon as possible? What is the company’s quality and reputation with its associated regulatory agencies? What factors do you think set it apart?
What are some strengths of Charles River’s unique portfolio across DSA, RMS [research models and services] and manufacturing? The company expects 20% DSA organic growth in H2 2022. What factors helping in forming your view on industry CROs and Charles River migrating to a more full-service provider or an all-eggs-in-one-basket vs more specialised approach?
How would you assess Charles River’s RMS segment? The company acquired Explora Biolabs, a provider of contract vivarium research services, in April 2022 for approximately USD 295m in cash, opening more than 15 vivarium pre-clinical facilities across three key US bio hubs. How do you expect this partnership to play out? What is the value-add there? I know Charles River has invested in cells supply businesses, insourcing solutions and animal diagnostics services recently.
95% of drugs that pass animal testing fail in human trials for being ineffective or unsafe. Given your expertise in non-animal in vitro models, what are your thoughts on Charles River buying into newer areas such as immuno-oncology and non-animal toxicology, diseases in animals and animal welfare? What are the cost benefits, opportunities and pain points here?
CRO clients really want to reduce clinical failure. As you mentioned, there have been huge developments with the human in vitro and on-a-chip models – essentially 3D bioprinting to fabricate a miniature organ on a chip. Could you expand on the development of on-a-chip models in the past couple of years and the effectiveness of this model in reality? What level of fruition has it enjoyed? What is the impact of emerging in vitro and on-a-chip technologies?
How beneficial would the adoption of the on-a-chip model be for Charles River? How does the company fit into this segment?
How would you suggest Charles River accelerate its progression into human in vitro and on-a-chip models? Do you think building out partnerships is a viable strategy? What is your view of the company’s strategic consolidation plan to grow within the segment to bolster growth? Even if it’s not within this realm, are there any other companies for Charles River to acquire to add to its portfolio, or any other synergies that it could leverage?
The FDA announced the Modernization Act in June 2022 and gave a political statement on ending animal testing in Europe. The EPA [Environmental Protection Agency] stated that it plans to end animal testing by 2035. What political and ethical implications could the US and Europe face? What is a five-year roadmap for Charles River to adopt the strategy, given the FDA announcement?
Other than organ chips and microphysical systems, what are your expectations around using cell-based assays, sophisticated computer modelling and human-based test methods in predicting human response based on scientific evidence?
What is the cost breakdown for Charles River to enter the non-animal testing space and in vitro human-chip model, in terms of R&D expenditure and materials sourcing? What is the cost benefit analysis?
Can you outline any drawbacks of Charles River’s products or service lines and potential gaps in offerings that the company could tap into – perhaps higher-end biotech-type molecules? What new technologies or developments could further strengthen its standing in the CRO space to which it should allocate corporate expenses?
Charles River claims to have the industry’s fastest drug development turnaround times and is targeting to reduce early-stage timelines by an additional year. How efficiently do you think the company keeps to its timelines? How much control does it have over any phase of the process, be it animal studies, slide reading, test reading or running pharma connect studies? Is Charles River ever in a situation where it needs to contract out, or does it get too pricey?
How are multinational companies picking their full service provider vs a smaller company and prioritising the three points you mentioned – price, quality and turnaround time? What is Charles River’s positioning within these three segments and how does this drive customer decision-making?
You mentioned pre-Interview that one of Charles River’s advantages is its price. Could you elaborate on the company’s pricing strategy? Why does it have a leg-up here? Is it charging a lower price than competitors and, if so, how would that deter its margins? Alternatively, is it charging a higher price to compensate for quality delivered?
Many bigger CROs are making a lot of agreements with other small, niche CROs that are competing, so instead of buying one you can essentially try before you buy. What is your take on this and Charles River’s implementation of this tactic? How beneficial has the try-before-you-buy model been for the company?
Given CROs don’t directly compete in every aspect, what are your thoughts on Charles River’s competitive positioning in the CRO industry? Compared to others at the pre-clinical vs clinical vs manufacturing stages, do you think the company is uniquely qualified to weather any downturns and keep the overhead going compared to smaller companies? What differentiating factors set it apart?
Inflation and supply chain issues are slowing the market down in terms of companies wanting to fund biotechs, though I’ve heard clients are generally unaffected. How has that affected Charles River? Do you think there will be another notable slowdown that could impact the CROs?
Charles River is expecting organic revenue growth of 12.5-14.5% from 2021 to 2024 and a decline in revenue and guidance due to high tax and interest rate headwinds. Is this a realistic expectation? What is your 12-18-month growth outlook for the company, given the expected recession?
What are your thoughts on Charles River’s potential expansion into the APAC market, particularly China, given its technological segment and high demand?
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