Charles River Laboratories (CRL) expects its revenue to decline in 2025, the CEO revealed at the JP Morgan Healthcare Conference 2025 in San Francisco on 14 January. The lowered estimate will be along similar lines to projected 2024 revenues.
CEO James C. Foster attributed the poor projections to several problems: low client spending on drug discovery and safety services, the loss of a cell therapy contract to a competitor, and reduction in another, as well as headwinds from site consolidations and forex.
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The decline in outsourcing spend by biotechs and pharma companies is a result of an industry-wide funding slowdown, which Foster blamed on “primarily psychological” forces and “hand-wringing” in the markets. Although industry funding began to normalise in 2024, this has not happened in time to improve CRL’s 2025 outlook, he said. Foster acknowledged that even last year, although biotech total valuations came close to 2020 levels, there were fewer than 300 new biotech companies backed by venture capital in 2024, compared to a high of more than 500 in 2021.
The company has three business segments, two of which saw a decline in revenue over the past year.
Discovery and safety services
This segment, which makes up 61% of CRL’s revenue, declined by 8% in the 12 months up to September 2024. Foster expects client demand in 2025 to match 2024’s trends: limited spending by pharma companies (stable, not growing) and by biotechs (improving slightly in 2025).
Across the industry, discovery services are only 30% outsourced, which Foster believes could be increased to 50%. For safety services, these figures are 60%, which he hopes could become 80%. While biotech companies operate virtually and must outsource all this work, big pharma has historically had capacity to perform this work in-house. However, recent restructuring and facility closures by big pharma suggests more work will flow to contract organizations in future, said the CEO.
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By GlobalDataCell and gene manufacturing
CRL’s cell and gene contract development and manufacturing business will have lower revenue in 2025, said Foster, after losing one commercial-stage cell therapy client to a competitor and receiving less than expected from a contract with another cell therapy client.
Charles River returned to its past as a CDMO in 2021 with the acquisition of cell and gene therapy CDMO Cognate BioServices. The company has invested in three Centers of Excellence for cell therapies, viral vector, and plasmids. Client demand for cell and gene services “is not as robust as at the time of acquisition, but attractive, long-term growth opportunities exist for our CDMO business,” CRL stated in an 8Q filing issued on the same day as the JPM presentation.
Revenue for this segment increased by 2.9% over the 12 months ending September 2024, making up 19% of CRL’s total revenue.
Research models
This segment, which provides research models for drug discovery and development, declined in revenue by 1.1% over the 12 months ending September 2024, contributing 20% of the company’s total income.
China is a substantial market for these services and the company will try to expand in this large country, said Foster: “We have less capable Chinese competitors. None of our typical competitors have moved into China so to a large extent we have the market to ourselves.”
Site and staff cuts
Foster announced the company’s lean recovery plan, beginning with a restructure that he hoped would bring $150m in annual cost savings in 2025 and $200m by 2026. By consolidating more than 20 smaller facilities that came from acquisitions, the company plans to reduce 5% of costs. It is also cutting 6% of staff. CRL also plans a big sales push, to retain customers of its discovery services as clients of its later-stage safety services.
Nonetheless, the CEO admitted that these efforts will not be able to fully offset the forecast decline in revenue.
Despite straitened circumstances, the company is willing to spend capital: Charles River is in talks to acquire private equity-owned companies in “relatively small deals.”
The company will issue full guidance for 4Q24 in mid-February.
