Charles River at BofA Conference: Strategic Insights on Q1 Performance

On Wednesday, 14 May 2025, Charles River Laboratories (NYSE:CRL) presented its strategic insights at the BofA Securities 2025 Healthcare Conference. The company reported a promising start to the year with its Q1 results surpassing expectations, primarily driven by the DSA division. However, challenges remain, particularly within the CDMO segment. The company remains cautious about the future, given the complex environment.

Key Takeaways

• Charles River’s Q1 results exceeded expectations, driven by strong performance in the DSA division.
• The net book-to-bill ratio surpassed one for the first time in two years, indicating strong demand.
• The company raised its revenue and EPS outlooks, reflecting confidence in future performance.
• Cost savings initiatives are projected to deliver $175 million in 2025 and $225 million in 2026.
• Charles River is focusing on alternative testing methods amid reduced reliance on animal testing.

Financial Results

• The DSA division’s performance contributed to revenue surpassing previous outlooks.
• The net book-to-bill ratio exceeded one, a positive sign after two years.
• Bookings increased by 20% year-over-year, led by global biopharma clients.
• Revenue outlook improved by 1%, now ranging from -4.5% to -2.5%.
• EPS outlook increased by $0.20, now projected between $9.3 and $9.8.
• NAMS revenues stand at approximately $200 million annually.
• $350 million in share repurchases were executed in Q1.

Operational Updates

• The DSA division saw increased bookings and a reduction in cancellations.
• CDMO revenue faced declines due to changes in commercial clients, though the gene therapy segment is growing.
• RMS division offsets volume declines with price increases and product mix improvements.
• Site consolidation is underway, targeting 20 smaller sites across business units.
• NHP supply chain diversification includes expansion in Mauritius.

Future Outlook

• Charles River maintains a cautious outlook due to the complex environment and limited improvement observed in Q1.
• The company aims to rebuild the CDMO pipeline for clinical-to-commercial clients.
• Further diversification of the NHP supply chain is planned to mitigate potential disruptions.
• Cost savings initiatives are expected to yield $175 million in 2025 and $225 million in 2026.
• Automation is anticipated to further reduce costs in 2026 and beyond.

Q&A Highlights

• The FDA’s announcement on reducing animal testing is expected to be gradual.
• NAM technologies are not yet fully ready to replace animal testing in all scenarios.
• Hybrid studies could provide short-term benefits.
• The Cambodian government is addressing the NHP trade restriction proposal.
• No immediate impact from NIH cuts has been observed.

Readers are encouraged to refer to the full transcript for a more detailed account of the conference call.

Full transcript - BofA Securities 2025 Healthcare Conference:

Mike, Interviewer: And joining us for our next session is Charles River Charles River Labs. Thanks so much. We’re joined by Burgut Gershuk. Format will be a fireside chat, but we’re happy to open up to questions in the end. Just raise your hand, and we’ll call over mic to you.

So, Burgut, maybe just to kick things off, you recently reported one q results. It was an eventful quarter, a lot of updates. Maybe you could just high level talk us through the key points, and then we’ll dive into them.

Burgut Gershuk, Charles River: Certainly. Happy to. And thanks, Mike, for having me today. Much appreciated for the invitation. So, yes, we have, just a week ago, updated on our quarter, which was, I would say, an interesting quarter for us.

First of all, on a positive news, we were very happy to see that we outperformed our previous outlook. So we came in slightly better than we had anticipated from a revenue perspective. This was primarily driven by our DSA division. We have seen net book to bill above one in the first time in two years, which was really good. It’s a really good indicator, and that was primarily driven by a increase in bookings the first quarter and a moderation of cancellations, which we actually have seen now for multiple quarters.

This allowed improve our guidance for the remainder of the year. So we improved our revenue outlook by 1% to minus 4.5 to minus 2.5, And we improved our outlook for EPS by $0.20 to $9.3 to $9.8 really reflecting the first quarter improvement in our guidance. We are continuing to take a cautious outlook and because of the complex environment, but also that we are at this point only seeing one quarter, and we’ll see how the rest of the year will shape up for that. We also spent considerable amount of time educating and updating on the FDA announcement that happened about three weeks ago now, where the announcement stated that the FDA is seeking to reduce animal testing over the next few years. And as we stated in our earnings release, this is actually something that Charles River has been extremely committed to, has done a lot of investments over the last years and sees as part of our business model and mission, and we certainly can talk more about that.

I’m sure you have some questions about that. Yeah. Interesting quarter and but I think pretty positive outlook.

Mike, Interviewer: Okay. Great. That’s a good place to start. And, yeah, I wanna touch on on both of the topics you spent time on. But first, maybe let’s go into the the results, the DSA component.

You talked about the the increase in bookings, moderation of cancellations. You talked about some of the the trials and and some of the types of bookings that you saw. Could you talk about what you saw between maybe biotech and pharma, where you’ve seen some of the moderation of cancellations, just sort of how that played out throughout the quarter and how that impacts your thinking on DSA bookings and revenues for the rest of the year?

Burgut Gershuk, Charles River: Yeah. Certainly. So as I said, net book to bill above one. First time in in two years, long awaited for. Happy to see it.

Our bookings went up 20% year over year in sequential. The bookings mostly led by our global biopharma clients, and a lot of the bookings we have been seeing actually short term in nature, meaning their work getting into Q1 and into Q2. So having capacity available that our assurance that we had staff available worked out for us in this particular case very, very well. Global biopharma, even so the bookings were up, were declining for us in Q1, and the reason for this is that the decline for global pharma for us didn’t come till H2 of twenty twenty four, So we have not really seen an anniversary of global biopharma demand yet for us. Our mid tier biotech clients, we saw an increase in revenue in Q1.

We have seen that now for multiple quarters, which probably reflects the slight improvement in funding and environment they have been seeing last year where many of our clients have some money to spend and move their programs forward. So definitely quite positive seeing that. We also saw a little bit of a mix benefit in our DSA organization, which helped us with Q1 as well. I want to reiterate that some of the short term bookings we’re really seeing for H2, clients have not indicated a general change in their outlook and their demands. So we are very cautious about h two, and that’s how our guidance of a slight improvement in our guidance came about.

And we will be watching that going forward.

Mike, Interviewer: Okay. Just talking about some of those bookings, you talked about it being shorter term in nature. What makes some programs shorter in term in nature? Is it the type of is it the type of work you do? Is is it indication based?

Is it customer based?

Burgut Gershuk, Charles River: Yeah. So what I mean with that really is that they started relatively quickly. So normally, we see clients booking out multiple months ahead of time, planning out their studies. And the longer that goes, the more cancellations you will see again because things change in their prioritization or in their data. What we’ve seen in Q1 was a really, a bunch of quick study starts, which helped obviously H1 for us, but also shows that clients are continuing to work on their programs.

And to me it indicates that pharma has probably for the most part done their work on what programs they move forward, where they’re prioritizing their work, what R and D they’re doing. And so it’s good to see likely coming out of their budget approvals early in the year ready to do some work.

Mike, Interviewer: And right now you have capacities. That’s why, you know, those quick short short studies started. So you were able to slot in right away?

Burgut Gershuk, Charles River: Right. Or relatively forward. Yeah. Okay.

Mike, Interviewer: Alright. I wanna move to the other point you touched on the the NAMS, the the FDA policy announcement from a couple weeks ago. Obviously, set the stocks down pretty meaningfully. Can you take us through sort of your interpretation of what that policy calls for? Because it was a wide ranging statement that covered a lot of different things.

Burgut Gershuk, Charles River: Yeah, happy to, very happy to. So yeah, let me start with so the FDA, the commissioner announced more of a press release type of we are going to reduce or eliminate animal testing. The FDA will have new guidelines. And so if you really look at it, NAMS is kind of a continuation of the work that has previously been done. So the evolution of NAMS is not really new.

So if you think about the work we have done in our, we in the industry have done over the last decades, we used to talk about three R’s. So thinking about just our outbred rodent sales utilization over the last ten years has reduced by half over from where we were a decade ago, while Charles River’s revenue has increased. So just to indicate that reduction of animal studies, finding other solutions, other in vitro and silico models and technologies has been an ongoing initiative industry and for Charles River. Charles River launched a formalization of its program last year. We call it AMAP.

We press released that I think about a year ago, and we have stated that we had invested roughly $200,000,000 and plan to invest, continue to invest about the same or more over the next five years. Things that we have done to drive names, new approach methods, or new alternative methods forward are things like in M and A, we have acquired an organization like called Retrogenics, which is a cell based off target screening technology. But we also have done a bunch of partnerships with companies that are squarely in NAMS development space, as well as in AI, where we use data to provide a better target and maybe less of a fallout in preclinical. So, we did the partnership with Valo, which is an AI based discovery platform, where we’re really driving forward with them better targets and better compounds, and with that fewer animal studies. So as you can see, Charles River has been part of this initiative, and we will continue to be part of that initiative.

We also announced last week that in the strict definition of NAMS, our revenues are now about $200,000,000 a year. That will increase as new technologies become available, and we are uniquely positioned to implement the technologies or support the validation of those technology or innovate on those technologies. From a timeline perspective, the FDA has specifically mentioned maps, which makes complete sense because they are much more defined targets and molecules and lower toxicity and they specifically mentioned chronic studies. Many of our clients have already gotten waivers for chronic studies when applicable. So, there is a process that the FDA has where they can apply for that.

We believe that will continue and maybe accelerated that. And for us, we sized about, so mAbs, the chronic studies for us is about 15,000,000. We believe that not all of that will be going away, but maybe some of it over the next few years. And it’s to us this is actually a really good pilot study for the FDA to take on. Other areas like small molecules and cell and gene therapy, NAMS technologies will be a little bit harder to get to.

There’s a lot more to consider. But as those technologies become available, we will certainly help validate them and implement them. But the timelines will be driven by patient safety and science. So and again, we applaud the FDA for making this announcement, and we have and will continue to work with the FDA and some other regulatory agencies to see where we can implement them and how we can support the industry doing that.

Mike, Interviewer: Okay. Thanks. That’s really helpful. Let me just focus on a couple of things you called out. One is on the FDA implementation plan from that press release announcement.

I mean, it’s not like this is all being enacted today. It was sort of an initial shot. Mhmm. There’s a, you know, there’s a a comment period. There’s gonna be a trial initiated later this year.

So this is still realistically years away from being broadly implemented and possibly, you know, a decade away. Right? This is not nothing nothing is gonna happen on this in 2025.

Burgut Gershuk, Charles River: Right.

Mike, Interviewer: Very likely very little or nothing will happen in 2026. So we’re talking years down the line.

Burgut Gershuk, Charles River: Yeah. I see it more as a continuum of what we have done before. So as I said, the animal testing has been considerably reduced from what we have done a decade ago. And the focus on NAMS is a good thing, and maybe we find some new technologies quicker, But as you said, it will take a long time, and we we will be a part of it.

Mike, Interviewer: Yeah. And and to your yeah. And then the other point is on on what the names are in terms of organoids or, you know, organs on a chip, AI, some of these technologies have been around for ten, twenty years, and they’re not fully ready yet. Right? They’re, you know, they can be used in select cases, but it’s not like, they can easily be swapped out.

So, Sonic, the industry hasn’t been working on this. You know, we cover a lot of the other companies that are that are in the space as well. And, you know, if the end goal is patient safety, you can’t sub this in. And now it’s it’s gonna require more investment.

Burgut Gershuk, Charles River: Yeah. In the short term, we actually potentially will see some upside from hybrid studies where those names need to be run alongside the animal studies. So we’ll see how this works out for us.

Mike, Interviewer: Okay. Alright. Great. I wanna just pivot on some of the other business segments real quick. One is I wanna talk about the the manufacturing business, and particularly CDMO.

Just can you give us an update on how that played out in the first quarter, your expectations for the rest of the year?

Burgut Gershuk, Charles River: Yes, certainly. So we had announced that our CDMO, we have a decline in revenue because of some commercial clients that one of our commercial client that refocused their supply chain, and we will not be doing any work the future for them, and then another commercial client where the revenues will be lower. So there’s a 500 basis points impact on our manufacturing division because of this in Q1 and for the full year. But overall, we are seeing we have a pretty good pipeline of interest and new entrants into the business. We’ll take a little time to rebuild that.

Our focus for this business for the last few years has been heavily taking the CDMO from a early clinical CDMO into a commercial CDMO, which is a heavy lift and quite complex, but I’m very happy where we are today. We have really good leadership as well as have made real good progress over the last, you know, couple years, particularly in the last year. I’m seeing a lot of improvements. So going forward I do believe that this CDMO is positioned for growth and is positioned for getting new clients from clinic into commercial. Also good to say that our gene therapy part of the CDMO has been growing, and so showing that even so the market demand is a little less than we anticipated a couple of years ago, the interest in our services is there and is robust, and I’m sure we can rebuild that.

Mike, Interviewer: I was gonna touch on cell and gene therapy next. What does the funnel look like there? You know, you just mentioned it’s growing. Is that from existing customers? Is that from projects progressing through the clinical trial phases, or is that new programs adding on?

Burgut Gershuk, Charles River: Yeah, so we are in our gene therapy, it’s a lot of new clients coming in looking for clinical and later on commercial manufacturing of gene therapies for us. So we have three centers of excellence. We have a plasmid CDMO in Europe, and we have a viral vector CDMO in The U. S, and then our cell therapy, which is the larger part in The U. S.

And so we are seeing a lot of clients come in looking for future, current and future manufacturing opportunities. For cell therapy, our growth historically was mostly with existing clients. We are now rebuilding that pipeline, and we see good interest of new clients coming in that are looking for a CDMO that does have capability taking a program from clinical into commercial. And I think we are positioning ourselves well for that. Okay.

Mike, Interviewer: Any questions in the audience? Go on. Let’s talk about RMS a little bit. You know, we touched on it already briefly when we were talking about the the NAM situation. But can you talk about what you’re seeing in terms of pricing, in terms of, yeah, I’ll start with pricing.

Burgut Gershuk, Charles River: Yeah. So our RMS division, as you know, historically that will continue that the use of animals will be reduced. We have seen that for many years. But in this division specifically, we have always been able to get price to offset the decline of volumes in that space. We also have positive mix here.

So the animals that we are selling become increasingly complex, so genetically engineered models or humanized models. So, there’s a lot of innovation and R and D going into that. What is the best model for our client studies? What can we offer? Where do we offer it?

And with that we have seen quite good pricemix uptake. And then also we have been able to maintain or increase our market share in that in RMS because of the services we offer, but also because of the efficiencies and client centricity we offer. So our RMS organization is heavy into e commerce and things like that that make it really easy for our clients to order and receive the animals and get background data and things like that. So happy where we are with RMS.

Mike, Interviewer: This segment is also where you you’ve got a little bit more exposure to academic and government, NIH, things like that. How much of that policy headwind have you factored into your outlook and and sort of how has that materialized, you know, as the year progressed?

Burgut Gershuk, Charles River: Yeah. So our academic and government, the North American academic and government, you should specify that, is about 20% of RMS. So not insignificant, but for our overall company, not really huge. At this stage, our government, academic and government has actually been seeing growth in Q1. So short term we have seen no impact from NIH cuts or from academic research grants being cut.

We certainly talk to our clients quite a bit, and there’s a lot of uncertainty there, and grants that may be cut by later in the year. So we’re taking a cautious outlook, and that’s part of our outlook that we factored in, of that there will be some impact in pockets. I think we’re still working through what that means. One of the items to consider is that animal purchases are actually direct cost. So for our academic clients it might be more beneficial buying animals than breeding animals internally.

But we’re working through those kind of variables. It’s I think too, a little bit too fresh for our academic clients from leadership down to the researcher who actually orders the animals. Unclear what grants will stay, what will go. And then NIH, I think, is still working through exactly where they’re finding their cost cuts that they’re required to make. Are

Mike, Interviewer: you seeing any difference here in terms of orders versus revenues? You know, if there’s a lag here where the, you know, the strength you saw in one q was just sort of people finishing up studies that have already been planned and

Burgut Gershuk, Charles River: No. Not really. So you our research models orders are relatively short term, right? So in large cases they actually come in Friday for a Monday shipment, even so we know what we can actually plan ahead because we know what their outlook is. From an NIH perspective, lot of the work we do directly are insourcing contracts where we manage something, a colony for the NIH, so we would have long term discussions about changes that are there, and we’re in the middle of discussions to see how this works out for us and for them and so on, where we can help them to cut costs without cutting scientific capabilities.

But so far, we have not seen an immediate impact.

Mike, Interviewer: Okay. I also want to touch on the NHP situation. Again, there was a lot of noise earlier this year following that site’s proposal to restrict an HP trade from Cambodia, then it was then it was sort of delayed, put on hold. Sort of what’s the latest you’ve heard on that, and and how should we think about, you know, the odds of that being implemented and the impact that would have?

Burgut Gershuk, Charles River: Yeah. Mike, I thought I get get away with no energy questions today. Certainly. So just I don’t know if everybody has the same information. So CITES is the organization that governs kind of the permits of animals coming in, but going exporting, importing into various countries, and NHPs are part of that permitting process.

And earlier this year, there was a recommendation to the CITES Sustaining Committee of suspending trade for Cambodia, which came kind of to a surprise to some of the governing countries even. In February, the meeting happened. The recommendation was not to do the suspension but there’s some follow-up work to be done which we know that the Cambodian government and Cytis is working through that process and so we’ll need to see what happens but I I’m I’m pretty confident we can work through this and hopefully mitigate any kind of impact there. As you know, Charles River has diversified supply over the years. We continue to diversify supply as much as we can.

So if something would happen, we try to mitigate the impact as much as we can. But so at this point, we don’t see anything happening in 2025, and certainly confident, somewhat confident that we can work through this with with the CITES committee or Cambodia can work through that with the CITES committee and not have any impact going forward. In the meantime, we are we’re looking at supply chains and things.

Mike, Interviewer: On the supply chain front, how much of your NHP supply still comes from Cambodia?

Burgut Gershuk, Charles River: We don’t know if we have given that percentage. So it might have been in our NHP report that we’re actually publishing every year. So we still have a considerable percentage, so I think it’s less than 30%, but don’t quote me if that’s not quite the accurate number right now. But we have diversified into Mauritius, and we have done an acquisition of one of the farms there, and we are working to increase their capacity, and we’ll have more supply coming from the Mauritius farms after 2026. So there’s there’s a lot of effort of diversifying and increasing supply from other areas.

Mike, Interviewer: In terms of building up that supply externally, how long does that take? You know, how quickly will you be able to pivot if this does come to pass to build up some of those other supplier routes?

Burgut Gershuk, Charles River: Yeah. I mean, there are multiple strategies that can be applied. One is moving our clients to a different background of the animals, like the Mauritius animals. Some of it is the location of the studies we can do, and then also what’s the imports that we’re being able to do this year versus next year. So we have not completely worked through there.

If Cambodia would not happen, there would be some impact on the industry, but we’re working through that right now.

Mike, Interviewer: Okay. I wanna make sure we touch on margins and and cost savings real quick. Can you give us an update on the on the cumulative cost savings you announced? I think I think you could said a hundred 75,000,000 of that to be realized this year. Where in particular are you finding the most opportunities?

Burgut Gershuk, Charles River: Yeah. So it’s a hundred and 75,000,000 annualized this year and then two $225,000,000 annualized in 2026. So we are increasing. We will continue to work on cost savings and efficiencies in the organization and the areas that we are working on, obviously there was some staff reduction because of the volumes, but there’s also some efficiencies in G and A and other areas that don’t need to be rehired. So there’s about 75,000,000 of the cost saving that we don’t believe need to be rehired if volumes come up.

Other areas that we have focused on is site consolidation. We announced the process of consolidating 20 of our smaller sites. That will give us some cost savings between this year and then going to next year. And then we are looking at other areas for automation and more of holdbacks, and certain things like that. Our digital investments are delivering cost savings as we speak now, and that will increase too going over into next year.

So, and those are part of the reasons we have roles that we believe that we don’t need to rehire if the volumes come back. So that’s a considerable focus for Charles River, making sure that our infrastructure is right sized, that we are scalable, but that we are also protecting our ability to increase volumes when the work is coming back.

Mike, Interviewer: Some of that site consolidation, is that specific to DSA or

Burgut Gershuk, Charles River: No. It’s actually so we are took a holistic view of the whole portfolio. So it’s not specific to DSA. It’s actually in in all of our businesses. And what we have looked at is what are sites that are relatively small and can be from a service offering incorporated into other sites that we currently have.

This is actually something that many of our clients prefer larger sites with more capabilities, rather than working with smaller sites just because of relationships, but also the requirement to audit, and you know, just it’s easier for clients to work in a larger site than in a smaller site. So and as I said, we’re we’re pretty well through the consolidations. A couple are still ongoing and will be completed.

Mike, Interviewer: I wanna ask a couple policy related questions at the end to tie it up. One is on potential impacts to the pharma industry from, you know, most of every nation, drug pricing, things like that. Any indication of of pharma’s decision or priorities in terms of outsourcing or types of programs? You know, it applies to both later stage clinical, but also early clinical early research development. Just have conversations changed in that in the last couple weeks

Burgut Gershuk, Charles River: Two or No. So for us, they haven’t changed yet. I think it’s too fresh, too new. Our clients just basically have completed their last restructuring. I think right now for them, at least in the preclinical space, it’s let’s execute and while they’re figuring out what that means and if it means something to them.

And

Mike, Interviewer: on the competitive front, any any changes there in terms of recent market pressures impact any of your smaller competitors more so, less so than you? Is is that impacting their willingness to price more aggressively?

Burgut Gershuk, Charles River: Yeah. I mean, it’s as a smaller competitor, you’re you’re always quicker to be impacted by capacity reductions, volume reductions. And when clients are looking for more efficient ways of doing work, better pricing, they’re generally consolidating their contracts. So, I don’t want to speak for any of our competitors specifically, but I would have to believe that they’re they’re struggling probably more than we do as we can either absorb or use our pricing power and our portfolio to work through times and areas like that.

Mike, Interviewer: Does that create any incremental opportunities for consolidation or for M and A? Maybe just broadly, how are you thinking about capital deployment in this environment?

Burgut Gershuk, Charles River: Potentially. Right now our focus for capital deployment is more towards share repurchases. We just did $350,000,000 in the first quarter, executing half or nearly half of that 1,000,000,000 that was approved. And we’ll be looking to see with our new SPAC committee what we want to do going forward. Otherwise, we have done debt repayment, getting our interest down, and really making sure that we have a solid and capable organisation going forward.

M and A is certainly potential, but we’d have to think about what, if any, competitor would be attractive to us. Okay.

Mike, Interviewer: And then I’ll go with our final standard closing questions. What do you think is the most misunderstood or underappreciated about Charles River? A lot to choose from.

Burgut Gershuk, Charles River: Other than the stock price? Yeah. Well, I have to come back to the FDA announcement. The stock price was so impacted that I believe that maybe what’s misunderstood is Charles River is a drug development company. We do both in vivo and in vitro.

We use modeling technologies. Whatever our clients need to get a drug to market, we are here for them, and we will execute that. We are always trying to be the first one or even to guide regulatory agencies towards new technologies, and our M and A and partnerships have been geared towards a lot of the non animal technologies. So I think that’s maybe the most not so well understood fact of Charles River.

Mike, Interviewer: Great.

Burgut Gershuk, Charles River: Thank you.

Mike, Interviewer: Thank you so much. Thanks, everyone. Thanks, Bridget.

Burgut Gershuk, Charles River: Thank you.

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