Charles River Laboratories International (NYSE: CRL) sells genetically engineered mice and rats to pharmaceutical and biotechnology companies and academic research institutions. CRL has two main business segments: its Research Model Services (RMS) breeds research animals for laboratories around the word, and Preclinical Services (PCS) performs tests for pharmaceutical companies in the FDA drug development and licensing process. Each segment accounts for roughly half of the company's annual revenue. The company generated $1.2 billion in net sales and $114 million in net income in 2009.
CRL is the largest provider of genetically engineered mice and rats in the world, facing competition from just three small suppliers in the U.S., two of which are privately-owned and the last a nonprofit governmental organization. Due to stringent governmental regulations and application procedures, it is costly to enter the business of selling genetically engineered animals for research purposes.
In Preclinical Services, CRL has had an aggressive acquisition strategy since 2006, absorbing Northwest Kinetics, MIR Preclinical Service, and NewLab BioQuality. Pharmaceutical companies use CRL to outsource the initial toxicology studies in the rigorous FDA new drug approval process, and as such the company competes with the in-house preclinical drug testing services of its own clients. 50% of the global market for outsourced drug testing is controlled by just five companies, including CRL.
CRL sells tools and services for drug discovery and development to commercial labs at biotechnology firms and academic institutions. CRL's two main divisions are Research Models and Services (RMS) and Preclinical Services (PCS).
The RMS division mainly provides materials and various animal models for use in research studies. This division is a steady revenue stream for CRL because the products are consumable, and there are few competitors in this industry, and it accounts for 46.9% of total revenues. This division offers the following:
The PCS division provides services to drug manufacturers to perform early (preclinical) stage testing for candidate drugs for purposes of FDA approval. The PCS division represents 53.1% of total revenues. Services include:
CRL has made several acquisitions over the past few years, mainly in an effort to expand its capabilities in the Preclinical Services division. These include:
Nearly 50% of CRL's revenues come from sales of consumable genetically engineered mice and rat models used by researchers funded by the National Institute of Health (NIH). As a result, the company is dependent on federal funding of research, and a decision by the government to cut this research would hurt animal model sales and negatively impact CRL's performance in the short term. In the long term, research institutions may switch from using animal models as research tools to substitutes such as cultivated cell colonies, reducing the demand for CRL's products.
CRL's acquisition of Northwest Kinetics expanded its toxicology testing capabilities, but demand for these products depends on whether pharmaceutical companies need to outsource toxicology studies on new drugs. The market for these services is projected to hit $1.52 Billion by 2010), but this number may shrink as pharmaceutical companies respond to the current economic downturn by cutting research and development of new products.
CRL is the largest global provider of research animal models in the U.S. with just three small competitors. Of the three competitors, two are privately owned companies and the third is a non-profit governmental organization. Due to the substantial initial investment and rigorous licensing procedures required to enter the research model supplier business, barriers to entry in this segment are significant. These barriers to entry shield the RMS division of CRL from potential competitors.
CRL is one of the two largest providers of preclinical services in the U.S., with Covance (CVD) its main competitor. These top two players in the outsourced preclinical services market (shown in the table below) make up 50% of overall market share, while the other 50% of the market is highly fragmented.