Charles River Plans Capacity Expansions

Sales to biotechnology clients produced a 9% increase in Charles River's organic revenue growth, which the company said is its highest level of growth since the second quarter of 2008. "Double-digit organic revenue growth for our safety assessment, microbial solutions, and biologic businesses drove the increase," David R. Smith, CFO and executive vice-president of Charles River, said during a third-quarter earnings call on Nov. 3, 2015.

The company’s safety assessment business drove revenue growth of 16.2% on a constant-currency basis. In the company's manufacturing support arm, revenue growth was 23.7%, driven primarily by the company's acquisitions of Celsis and Sunrise Farms and its "robust" revenue growth in both the legacy microbial solutions business (formerly the endotoxin and microbial detection unit) and its biologics testing solutions business.

"The biologics business performed very well in the third quarter, delivering strong revenue growth and an improved operating margin," said Smith, who added that the company plans to continue to invest in its "expanding biologics portfolio through the development of new assays and additional capabilities" to better serve its clients. "The investment is particularly important now when the number of biologic drugs in development is increasing, as is demand for testing of biosimilars," Smith added.

Drug discovery services play a key role
Sales to biotechnology clients were a key driver of overall revenue increases as well, executives said.  "As a whole, biotech companies have been the most consistent driver of our recent growth as they invested funding received from both the capital markets and from global biopharma, which is increasingly relying on biotech for drug discovery."

Many of Charles River's clients that were initially small biotech companies are now counted as the brand's biggest clients, executives noted during the call. Currently operating at near optimal capacity, the company plans to open additional study rooms in the fourth quarter and reopen its Charles River Massachusetts location to meet increasing demand. James C. Foster, chairman, president, and CEO, also said a small portion of its clients are virtual start-up companies that have no internal capabilities.

Future M&A?
Foster said that while the company is happy with its current infrastructure, it is well financed to participate in M&A activities in the future. "We're quite interested in doing M&A," Foster said. "There are a lot of targets out there, both in discovery and in some of our other growth businesses." The company's role in discovery research efforts is likely to expand, Foster concluded. "We intend to play a leading role in this emerging opportunity, which we believe will be significant."

Sources: Seeking Alpha, Charles River