CRL’s bottom line continues to be driven by biotech growth, CEO says

By Zachary Brennan

- Last updated on GMT

CRL’s bottom line continues to be driven by biotech growth, CEO says

Related tags Big pharma Central nervous system

For the second straight year Charles River Laboratories has seen more of its revenue derived from biotech companies than Big Pharma, CEO James Foster told investors at two conferences on Tuesday and Wednesday.

The growth for CRL, which Foster called “an interesting phenomenon worth noting,​” comes as biotech companies have become the drug discovery engines of Big Pharma. He also noted that the primary funding source for biotech is Big Pharma and biotech is receiving “three to four times what they got from the capital markets​” from Big Pharma.

Large molecules will continue to be a high-growth area​,” Foster said, though he noted that the company’s “fastest-growing​” part of its business is in endotoxin and microbial detection, which ensures drugs or medical devices are not contaminated during manufacturing. “We’ve taken procedures that took days… and now taken our technology and can test it in a couple of hours…it’s about 10% of our business right now, and we have tech well ahead of our competitors, and we’re continuing to iterate that technology​,” he said.

Foster also predicted that there won’t be much more M&A activity in the Big Pharma sector as “bigger does not prove to be better​.”

The shift in capital comes as CRL has become “the go and no-go business​,” in terms of helping pharma and biotech companies decide as early as possible on a compound’s future. He also noted that in addition to work in oncology, CNS (central nervous system) and metabolic disease, “infectious disease is the next area of growth for us​.”

M&A for CRL

In both conversations Foster also echoed earlier comments​ in noting that CRL is looking to acquire a company in the drug discovery space.

The $5-7bn discovery business market is currently only 10-15% outsourced, Foster said, comparing it to the toxicology market, which seems to be currently growing and which is 50-55% outsourced. “This discovery will be outsourced with time​,” Foster said.

In saying the company is focused on M&A, Foster added that it currently has “great cash flow and good borrowing power” and that the company is looking for “new technology that we don’t have and our clients want” but not necessarily for “cutting edge technologies” which the company tends to “license in” and not necessarily on an exclusive basis.

CRL is also looking to grow its cell banking capabilities, as well as to establish new assays to test client drugs. The company is also looking to expand on its “small avian business​” as well.

We’re seeing this incredible increase in outsourced work and seeing the academic institutions also outsource the work as well and it’s picking up speed​,” he added. “So we’re seeing our capacity, primarily in safety assessment, fill up – and it will be full by the end of the year. Prices have also come down and we’re seeing some more pricing power​.”

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