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CRL to close MI research model unit, as preclinical biz blossoms

By Dan Stanton , 12-Feb-2014
Last updated on 12-Feb-2014 at 15:56 GMT

Research model service low growth leads to shuttering of CRL Michigan site
Research model service low growth leads to shuttering of CRL Michigan site

Charles River Laboratories says it will shutter a Research Models and Services (RMS) facility in Michigan as softened demand for the sector offset a strong year for its preclinical service business.

The contract research organisation (CRO) has reported full year revenues of $1.17bn (€860m), up 3% on 2012. However, within its RMS business it saw just a 1.7% growth in sales whilst operating income fell 10% to $181m and GAAP operating margin was down 460 basis points to 21%. Furthermore, excluding revenue from recently acquired Vital River , sales of small research models declined by 5% overall.

Though Jefferies analyst David Windley said RMS sales were in line with estimates, he said in a note that “management intends to back up its prior comments about pushing RMS operating margin back to/above 30%. It has recently assigned a senior executive to spearhead these efficiency efforts, a list of projects has been assembled, and savings should start to be realized later in 2014.”

One area of increasing efficiency discussed by the company in its conference call today is the closure of an RMS facility in Portage, Michigan by the end of this year.

This is expected to help optimise capacity, CEO James Foster told stakeholders, and, once closed, approximately 8% of CRL’s global RMS production capacity will have been consolidated within a year, including three rooms in California the firm announced it was shutting in Q3 2013.

According to the firm, softened demand for CRL’s research models were due to the continuing consolidation of the biopharma industry, closure of facilities and the evolution of drug development to eliminate molecules earlier in the process.

News of the Portage closure first broke last week in a Worker Adjustment and Retraining Notification (WARN) Act filing , with the company notifying the Michigan Workforce Development Agency approximately 84 employees will be affected.

Preclinical Service driven by mid-tier

For the firm’s preclinical service (PCS) business, sales were up 5.5% on last year to $458m, as was operating income.

This led to Windley saying that along with Covance’s recent results , such positivity confirms indicators talked about at the beginning of the year of a recovery in the preclinical industry.

“Preclinical growth is accelerating,” Windley said, “primarily driven by small/mid-tier client segment.Importantly, better funding to small/mid-tier clients stimulates new work, not just a change of venue. Thus, that organic growth should have a knock-on benefit to model sales, eventually.”

CRL said in the last year sales to its mid-tier biotech clients were greater than to global key accounts, attributing this to biotech’s improved access to funding from both large Pharma and the capital markets, as well as the firm’s targeted sales strategies to win business.