Charles River plans cautious approach to re-opening of Shrewsbury preclinical site

By Zachary Brennan

- Last updated on GMT

Charles River plans cautious approach to re-opening of Shrewsbury preclinical site

Related tags Charles river Revenue Research

After months of speculation, Charles River Laboratories has decided to move forward with the re-opening of its early-stage research site in Shrewsbury, Massachusetts sometime in the first quarter of 2016.

The site was previously closed back in 2010​ after a prolonged period of low demand for preclinical services, which resulted in the cutting of nearly 300 jobs.

The company told investors earlier this week, however, that a rebound in demand for early-stage drug research services “makes this the ideal time to reopen the site​,” though the re-opening will occur in phases.

Charles River says the site will initially provide non-GLP (good laboratory practice) services as well as bioanalysis. The re-opening is expected to have minimal impact on DSA (Discovery and Safety Assessment) operating margin in FY2016. But the site’s proximity to the Boston and Cambridge, MA, biohub and no other local competition could help build a client base.

We have already received considerable indications of interest from large biopharma and emerging biotech companies, as well as academic research institutions​,” Chairman, president and CEO Jim Foster said in the Q2 earnings call from earlier this month.

Citi Research analyst Garen Sarafian also noted in a report to investors that the cautious re-opening will come with about 40 rooms and 140,000 square feet, which will significantly less than the nearly 80 rooms and 280,000 square feet that the company opened back in 2008.

The company is also bringing in just ~125 employees by year end (~50 of which will relocate from other CRL sites) compared to 465 in 2008​,” Sarafian said. “Even if the introduction of modest capacity from Shrewsbury may not have a dilutive impact on margins, we are cautious about future margin improvement in this segment driven by a) current margins are near peak levels; and b) additional fixed costs limit further leverage​.”

Strategic Partnerships

The recently announced five-year extension of Charles River’s partnership with AstraZeneca​ is another positive sign that the CRO’s strategic deals are progressing.

Sarafian noted that Charles River seems to be willing to “bid aggressively to initially capture market share​,” and that it has “exceeded its goal of gaining 2-3 partnerships per year since 2010​.

We expect Charles River will continue to be aggressive in pursuing additional strategic relationships where the company will need to delicately balance top-line growth with maintaining favorable margin​s,” he added, though he remains skeptical that the company will be able to reach its updated long-term organic revenue growth rate to “high single-digits​.”

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