Charles River sees renewed growth in Q1
expectations after seeing renewed growth in its research models and
The contract research organisation (CRO) has increased its operating income by 25 per cent on the comparable period last year, to $54.7m (40.4m), helped by a 15 per cent sales increase to $291.2m. Pre-tax profit also jumped up 30 per cent to come in at $52.8m and the firm managed to bump up its operating profit by 2 percentage points to 10 per cent. These increases resulted "primarily from higher sales, as well as the benefit of cost savings initiatives implemented in 2006," said the firm. Charles River has been undergoing a phase of business restructure in order to refocus itself on its core competencies of laboratory animal medicine and preclinical services and these restructuring activities have been had an impact on the company's bottom line in past quarters. In addition to buying privately-held Northwest Kinetics, which provided the CRO with its first Phase I clinical trials facility in the US, the company also sold its Phase II-IV clinical services business to fellow CRO Kendle and shut down its Interventional and Surgical Services business. It has also decided to accelerate the exit from its Preclinical Services facility in Worcester, Massachusetts and move to a new site in Shrewsbury, Massachusetts, by the end of 2007. Although it had to pay $7.9m of amortization of intangible assets and stock-based compensation related to acquisitions, and an interest expense of $2.0m, this was less than it paid in the first quarter of 2006, which also helped in improving profitability. On a segment level, Research Models and Services (RMS) - which was largely responsible for dragging down the company's profits in the fourth quarter - made a comeback during the first quarter, achieving an 11 per cent rise in sales and a 16 per cent increase in operating profit. "Sales benefited from strong demand for research models from large pharmaceutical customers in North America, increased demand for Transgenic Services, and higher sales of in vitro products. As expected, sales of large research models increased significantly as shipments which had been delayed from the fourth quarter of 2006 due to an extended quarantine were released," said the company. As a result the segment's operating margin also increased 1.5 percentage points to 32.9 per cent. Meanwhile, the Preclinical Services (PCS) was also a strong performer, with sales of $148.1m, up 18.3 per cent, and an operating income that soared 70 per cent to $23.4m. These were achieved through "continuing strong demand for general and specialty toxicology services by pharmaceutical and biotechnology customers, and the addition of the Northwest Kinetics Phase I clinical services business," said Charles River. "The operating margin also improved to 15.8 per cent from per cent, as a result of higher sales, improved operating efficiencies and lower amortization of intangible assets related to acquisitions."