CRL mulls China and US unit sale and cuts 2010 rev guidance

By Gareth Macdonald contact

- Last updated on GMT

Related tags: Contract research organization, Crl

Charles River Laboratories (CRL) said it may sell two underperforming early-phase development units in a bid to reduce operating costs

In a statement yesterday, the contract research organisation (CRO) said it will “pursue strategic alternatives​” for its US Phase I trial facility and preclinical unit in Shanghai, China to reduce operating losses by around $10m.

CRL also reclassified the US Phase I centre as “discontinued” and cut its full year 2010 revenue guidance to between $1.11bn and $1.12bn from the $1.13bn to $1.14bn range it predicted only last month.

CEO James Foster set the move in context, explaining that over the last two years CRL has “aligned our infrastructure to current demand rigorously managed operating costs and increased our stock repurchases​.”

This “alignment” has already seen CRL halt operations at its preclinical site in Shrewsbury​, Massachusetts and unveil plans cut hundreds of jobs​ and close an early-phase facility in Laval, Canada.

Preclinical demand

CRL, like the majority of its peers in the contract research sector, has repeatedly ​cited low drug industry demand for preclinical development services as the dominating trend over the last 12-months.

And CRL expects the pattern to continue, if 2011 guidance it issued yesterday is any indication. The firm predicted that revenue from its preclinical division will fall between 2 and 3 per cent as a result of lower demand for toxicology testing.

This is in contrast with its forecast for its research models and services business, which it expects to contribute between 2 and 4 per cent more than it did in 2010.

Sale rumours

CRL’s latest strategic plan follows just days after Associated Press​ reported that two shareholders, Relational Investors and the California Teachers’ Pension Fund, had upped their stake in the CRO and were pushing the firm to “explore a sale​.”

The Wall Street Journal, which also reported the story, pointed out that Relational Investors was one of the shareholder groups that forced CRL to abandon its takeover​ of Chinese CRO Wuxi Pharmatech earlier this year.

CRL did not comment on the report, instead telling AP that it was “addressing near-term challenges and is confident in our strategic direction and growth prospects​."

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