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Charles River Laboratories International (CRL)Stock (Biotechnology Industry, Pharma & Healthcare Industry)
Charles River Laboratories International (NYSE: CRL) sells genetically engineered mice and rats to pharmaceutical and biotechnology companies and academic research institutions.[1] 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. [2] RMS accounted for 46.9% of CRL's total revenue in FY 2007, while PCS represented the remaining 53.1% of total revenue. [3]
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.[4] Due to stringent governmental regulations and application procedures, it is costly to enter the business of selling genetically engineered animals for research purposes.[5] 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.[6] 50% of the global market for outsourced drug testing is controlled by just five companies, including CRL.[7]
[edit] Business Financials[edit] Major Product DivisionsCRL 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 above chart compares CRL's total revenues and net income for fiscal years 2003-2007. Total revenue increased 16.3% from FY2006 to FY2007 due to increased customer demand, an increase in pricing, and revenue from Phase I clinical trials (which began in late 2006 after CRL acquired Northwest Kinetics)[8].[9] The above graph shows the breakdown of CRL's total revenue by division as well as total revenues (in bold above bars) for fiscal years 2005-2007.[10] [edit] Research ModelsThe 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 accounted for 46.9% of total revenues in FY 2007. [11] This division offers the following: [12]
[edit] Preclinical ServicesThe PCS division provides services to drug manufacturers to perform early (preclinical) stage testing for candidate drugs for purposes of FDA approval. The PCS division has grown in the past few years, from 49.4% of CRL's total revenues in FY 2005 to 53.1% of total revenues in FY 2007. Services include: [13]
[edit] AcquisitionsCRL has made several acquisitions over the past few years, mainly in an effort to expand its capabilities in the Preclinical Services division. These include:
[edit] Trends and Forces[edit] Demand for CRL's Animal Models Intensely Linked to R&D Spending at Research InstitutionsNearly 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. Although the NIH grant budget doubled from 1998-2003, its growth from 2003-2007 remained at 2-3%, which has restricted CRL's revenue growth. [17]. 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. [edit] Preclinical Services Depends on New Product Testing by Pharmaceutical CompaniesCRL's acquisition of Northwest Kinetics in 2006 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[18]), but this number may shrink as pharmaceutical companies respond to the current economic downturn by cutting research and development of new products. [edit] CRL's Profitability Depends on Success of AcquisitionsCRL has been making made a series of acquisitions since 2006 to expand its Preclinical Services division, including two in September 2008 (one company was bought for $12.5 million, the other for an undisclosed amount). Notably, CRL has not always integrated acquired companies successfully - its 2004 acquisition of Inveresk was a failed attempt to enter into the late-state development business that ended when CRL sold Inveresk to Kendle International (KNDL). In the same quarter, CRL posted profit losses of approximately $100 million. [19] Since, the company has stuck with providing research models for early-stage development, and serving as an outsourced testing laboratory when drugs are ready for FDA approval. [edit] Competition and Market Share
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. [20] 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. [21]
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. [22]
[edit] Notes
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The Shelf
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