Charles River Laboratories (CRL)
has established itself as a leading provider of research and testing services to drug, biotechnology, and medical device companies since its founding in 1947. Charles River is divided into a research models and services (RMS) unit and a preclinical services (PSC) division. The RMS business leads the world in offering animal-testing services, holding a 50 percent market share, according to Morningstar data.
The PSC unit provides discovery, bio-analysis, toxicology, pathology, consulting services, and program management to pharmaceutical, biotechnology, and medical device companies. Among Charles River’s various products, in-vitro testing is expanding most rapidly.
Pharmaceutical, biotech, and medical device companies increasingly outsource their research and development. That activity is very expensive to perform in-house, and success is uncertain.
Major drug companies have suffered highly publicized failures of medicines to which they devoted heavy spending in recent years. The outsourcing of research and development will probably continue to mushroom in coming years, and Charles River constitutes one of the top providers.
The company’s revenue dipped 2 percent in the first quarter to $286 million from $292 million a year earlier. But profit from continuing operations more than doubled to $35.4 million from $17.3 million.
"PCS sales have continued to show stability over the last three quarters,” CEO James Foster said in a statement accompanying the earnings report.
“However, the greater proportion of shorter-term studies in the sales mix is limiting visibility into a recovery in preclinical demand. As a result of the continued low visibility, coupled with the uncertain impact of the disaster on our clients and our operations in Japan, we are maintaining our prior sales and non-GAAP earnings guidance for the year."
Zacks Investment Research has a neutral rating on the stock. “We are encouraged by the first quarter, with the RMS business performing well and the PCS business remaining stable,” Zacks analysts write.
“Earnings also benefited from cost cutting and aggressive share repurchases. We, however, prefer to remain on the sidelines until we get more definitive signs of a substantial rebound in demand for preclinical services.”
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