Charles River Laboratories International Corp.CRL

Morningstar Rating

Stock Research and Analysis

by Jeffrey Stafford

With its scientific expertise and global infrastructure, Charles River Laboratories is a leading player in the contract research organization (CRO) industry. Specializing in lab animals and early stage clinical trails, the company stands to benefit from more outsourcing by big pharma, and we believe the firm will continue to generate returns above capital cost. Read more

Bulls Say

On the back of its world-class research-model business, Charles River sports an operating margin near the top of the contract research industry.

Sales of the company's new handheld endotoxin testing device are increasing rapidly. Endotoxin testing represents a market opportunity of about $200 million, and Charles River currently faces no competition, as its device is the only FDA-approved product on the market.

Charles River has a diverse customer base with no single customer accounting for more than 5% of sales in 2008.

The firm's preclinical services segment does not suffer from the high cancellation rates associated with late-stage clinical trials management. Read more

Bears Say

Charles River failed miserably in its attempt to expand into late-stage trial management with the acquisition of Inveresk in 2004. The company sold its late-stage business to Kendle KNDL in 2006, and has written off $900 million in goodwill to date.

Animal rights activists will undoubtedly continue to protest the firm's breeding of animals for scientific testing, exposing the company to potential litigation risk.

Cutbacks on research-and-development spending by financially distressed biotechnology companies could depress preclinical sales over the near term.

Expansion of the firm's infrastructure may drag down profitability if capacity is not filled expeditiously.

Prolonged periods of soft demand could spell trouble in the form of increased price competition. Read more

Strategy

The company is striving to use its established relationships in the supply of lab animals to cross-sell its newer toxicology and Phase I services. Charles River is expanding its infrastructure to meet demand, and believes it can gain market share in both segments as new facilities come on line. Read more

Management

We're maintaining our B Stewardship Grade for Charles River, as we have few complaints with firm's corporate governance. CEO James Foster has led the company since 1992, steering it to the front of the research model business. Although a bit on the high side, total compensation for executives is within reason, with a nice mix of fixed base pay, and variable cash and equity compensation. Read more

Profile

Charles River Laboratories International is the world's leading provider of animal-research models to pharmaceutical and biotechnology companies. In addition, the firm's preclinical segment provides services such as toxicology and Phase I clinical trial management. Read more

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