Charles River Laboratories (CRL) Baird's 2024 Global Healthcare Conference summary

Market environment and client trends

• Current client mix is about 40% biotech, 30% big pharma, and the rest academic/government, with a higher big pharma share in DSA.

• All top 20 pharma clients are engaged, many on a sole-source basis.

• Widespread R&D budget cuts and pipeline reprioritizations are occurring, especially among big pharma, driven by patent cliffs, IRA, and economic uncertainty.

• Spending shift toward clinical development is expected to persist into 2025, with no quick rebound anticipated.

• Biotech funding was strong in early 2023 but slowed in July and August, impacting proposal volume and bookings.

Operational performance and backlog

• Backlog in DSA remains above historical levels, but conversion rates are slower, with bookings and book-to-bill now better demand indicators.

• Biotech bookings are stronger than pharma, and cancellations are down, indicating more committed studies.

• Cost optimization initiatives are ongoing, focusing on G&A, site consolidation, digitalization, and best practices.

• Plans for further cost actions will be detailed in the Q3 update in November.

• Headcount and capacity reductions are being managed carefully to maintain readiness for demand recovery.

Business segment updates

• Research Models and Services (RMS) is resilient, with strong growth in China and Europe, and less impact from clinical cycles.

• RMS China represents about 15% of segment revenue and 4% of total revenue.

• Cell Solutions faced challenges from COVID and increased competition, but is differentiating through complex cell types and GMP production.

• Cradle incubator business is expanding selectively, with high margins and growth, though some locations are paused due to biotech slowdown.