CRL plans to pounce as pharma outsources more early discovery
Chief executive James Foster told investors yesterday the contract research organisation earned $349.5m in the third quarter of 2015, a 12% increase over 2014 and an almost 3% improvement on Q2 sales.
Analyst David Windley of Jefferies said the “strong” results triggered a “moderately positive” share response, but predicted investor confidence will soon improve “as demand leads to price leads to margin.”
Foster’s call with shareholders emphasised the company’s expansion of services – the CRO made four acquisitions in the last two years, and is clear on its plans for more – and plans to leverage its differentiation to increase market share, particularly in early discovery and biologics testing. The safety assessment business was the main driver behind the Q3 success, the chief executive said.
The acquisitions of microbial detection firm Celsis and egg supplier Sunrise contributed 11.8% to the manufacturing support business’s $72.7m revenue, up from $62.7m last year. “Organic revenue was also robust with both EMD and the biologics businesses delivering double-digit growth,” added Foster.
The company used the call to announce the renaming of its EMD (Endotoxin and Microbial Detection) business, now Microbial Solutions. Combined with Celsis, Sunrise, and Accugenix (acquired in 2012), Foster said the manufacturing support biz is pitching to a potential market of $2bn.
Charles River will position itself to take advantage of the growth of the innovator biologic and biosimilar industries, the CEO stated, with an expansion planned for its large molecule testing offering in both assays and capabilities:
“The investment is particularly important now when the number of biologic drugs in development is increasing, as is demand for testing of biosimilars. Our goal is to be well positioned to win market share in this expanding opportunity, and we are pleased with the progress we have made to date.”
Early discovery: more outsourcing predicted
CRL’s In Vivo Discovery business lost early discovery oncology contracts for integrated chemistry programmes late last year but these losses were partly offset by new custom, helped by the acquisitions of Argenta, BioFocus and ChanTest. Foster predicted pharma will increase more of its outsourcing work and said the firm plans to grab this emerging and “significant” market.
Charles River’s services businesses, which include its Research Model Services unit, brought $118.5m sales in Q3, an increase of 2%. Income was lower than expected, Foster said, because of the one-year anniversary a cancelled contract from the National Cancer Institute and one client’s reduced order for genetically engineered models.
While the company had “expected to see the decline of research model sales flatten in Europe and Japan,” this hope was only partly realised. While services revenue increased in Europe and North America for the quarter, sales in Japan continued to decline but this was “more than offset” by Chinese sales, said Foster. The company announced plans for acquisitions in China “to increase our research model production and provide associated services” in a region with growing outsourcing demand from government and private industry.
The company will reopen its main facility in Massachusetts early next year and will increase its Ohio lab space in Q4 2015.