查尔斯河实验室（CRL）战略评估与成本管理分析

USA | Pharmaceutical Svcs.Charles River Laboratories Jefferies NYC Healthcare Conference: CRLFireside CRL's COO joined us in a fireside chat discussion exploring the company'sdemand environment, cost management, and ongoing strategic review. Ifanything struck us as incremental it was the characterization of 1Q largepharma DSA demand as partly timing driven. Mgt is cautiously optimistic onlarge pharma while respectful of the challenged biotech funding environmentas relates to go-forward demand. Strategic Review, Cost Management, Portfolio Fit.Since mid-2024 when CRL got hit with an abruptdemand slowdown, mgt has reacted swiftly to remove costs and mitigate the margin pressure tocome from lower volume and price. So far, mgt has reduced total costs by ~5% with 1-2% more togo. Areas of concentration: facilities (20 - across DSA, RMS/CRADL) and labor. $75M of the laborcost savings is durable. Beyond the planned cost cuts, we doubt enough uptapped opportunityremains to make that interesting to the activist. Instead, portfolio review is more likely the next playin the book. While Ms. Girshik begged off of specifics, most view the Manufacturing segment asthe target of attention. Manufacturing Fit - Part or All.If we consider Safety Assessment the most central CRL business,Research Models, Research Model Services, and in vivo Discovery are close adjacencies. Maybeone could argue that in vitro Discovery is underscaled and doesn't really leverage CRL's animalexpertise. Still, it fits the continuum. Even before the CDMO acquisitions in '21, the ManufacturingSolutions segment was the least "core" of CRL's businesses. The Microbial and Biologics Testingservices support drug material production vs. core efficacy and safety testing. That said, less corewasn't bad, because these businesses were among the fastest growing and highest margin. TheCDMO M&A extended CRL's services further in manufacturing with a niche focus in emergingCGT. Unfortunately, the acquisition case was underpinned by 20-25% CGT growth and a scramblefor capacity, which is no longer the case. Further, CRL underestimated the quality and capitalinvestments necessary to make this a durable business. Ms. Girshik's reference to the strategicreview of portfolio fit reinforces the potential for divestiture, in our view. Our question(s): would theyhave a CDMO-only buyer, would they just shut it down if they don't, or would they sell the whole MSsegment as a more attractive package? FDA Animal Testing Headline, and the Market's Reaction to It, Provided Activist Opportunity.FDA's announced intention to phase-out animal testing for mAbs drove CRL to anunreasonablylowvaluation. Learnings since have reinforced the long-duration (could be 10+ years) and that mAbsare a less meaningful part of SA revenue ($60M) than originally believed. We think the stock isat areasonablylow valuation today. We do not think NAMs are driving the strategic review, butrather created an outsized opportunity for a nimble entrant in the stock. CRL already has $200M ofNAMs-related revenue, more so in discovery than SA. The long NAM runway means that CRL cana) continue to focus on execution in its core DSA and RMS businesses, and b) thoughtfully developits NAMs offerings over time, in case other modalities begin to phase-out animal testing as well. DSA Demand Finding Footing.Large pharma bookings lifted DSA B2B to ~1.0x for the first time in10 quarters. Calling that partially timing seemed new to us, but could have been a different way ofdescribing the quick-start, fast-burning studies. Biotech has been improving, but mgt seems wiserto the realities of weak biotech funding now than in '23. Biotech is a larger contributor to DSA thanbig pharma, thus, bookings stability from here doesn't seem assured. David Windley, CFA * | Equity Analyst(615) 963-8313 | dwindley@jefferies.comTucker Remmers * | Equity Associate+1 (615) 963-8315 | tremmers@jefferies.com Charles River Laboratories, Inc. (CRL)Equity ResearchJune 4, 2025 Company Description Charles River Laboratories Charles River Laboratories is a leading provider of animal research models and contract drug development services to the global biopharmaceuticalindustry. The company holds 50% market share in the supply of animals used in scientific research. Through acquisitions and de novo development,Charles River Labs has surrounded that franchise with services involved in the development of new drugs. In the most significant of these services,mammalian toxicology, Charles River became the second-largest global player through its acquisition of Inveresk Research in 2H04. The acquisitionalso marked the company's entry into clinical services, albeit in a small way. Company Valuation/Risks Charles River Laboratories Our $142 price target reflects a 14.0x multiple on 2026E EPS. Risks include extended pressure on volume/mix in research models, re-intensifying pricecompetition, customer consolidation, NIH + government funding. Analyst Certif