Charles River looks to save $35m from new efficiency initiatives

06-May-2015 - Last updated on 06-May-2015 at 21:35 GMT

As competition and pricing get fiercer for CRO Charles River Laboratories, the company is looking to save about $35m from new efficiencies in its RMS (Research Models and Services) business, Jim Foster, chairman, president and CEO of CRL, told investors at the Baird 2015 Growth Stock Conference.

A portion of that $35m, or about $3m, came from the consolidation of “a couple of discovery service sites into larger sites in Japan – so that work is done,” Foster said, noting that the company will begin to see the benefits of that consolidation in Q2 and for the balance of the year.

“This business is about 70 years old and yet it’s still quite manual. Embarrassingly manual,” Foster said, noting that the company is working through “a lot of IT initiatives right now that will enhance efficiency, productivity, inventory management, headcount, and facility footprint,” all of which have the aim of continuing to improve operating margins.

“The $35m is in multiple places in procurement, facility utilization, better headcount, [and] IT initiatives,” Foster added, also offering the example of how the company re-engineered its safety assessment business over the last five years and made it “extremely efficient as evidenced by the 600 basis point pop in margin in Q1,” he said.

And as far as the discrepancy between RMS sales in North America and those in Europe and Japan, Foster said that Europe and Japan tend to follow North America, so as the American business strengthens, the others should follow suit.

Tom Ackerman, CFO of Charles River, also spoke at the Deutsche Bank 40th Annual Health Care Conference on Wednesday and noted that the company is seeing “great growth” for some of its research models in the Chinese market.

Foster also said that the company’s genetically engineered research model business grew at a slower rate than anticipated, “principally because of one large client, though we’re also in the beginnings of a technological change in how the models are made. These multi-genetic knockouts are becoming powerful tools for new compounds with much better translational information.”

“I think we really have significant opportunities in the research models business which is still a big business, but in some ways is unsophisticated with lots of manual processes, to drive efficiency to add people more slowly or utilize people differently to drive margin,” Foster added.

And as far as the employees that CRL is looking to scoop up, Foster was his most candid, noting, “I think the clients viewed the CROs as second-rate – that was the perception… the reality is that if you’re in most of the Big Pharma companies, you’re at risk, and I think people are tired of that, and biotech is a fun, sexy place to work, but there are dozens of places that go bankrupt every year.”