Term Paper on "Biotechnology Business Focused on Charles River Laboratories"

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[EXCERPT] . . . .

Biotechnology Business Focused on Charles River Laboratories

The biotechnology industry is relatively new, but is has been responsible for some of the most important scientific discoveries that have benefited humanity to date. A concomitant to these contributions by the biotechnology community, though, has been the increased use of animals that are bred specifically for this purpose, a practice that has been roundly criticized by animal rights activists and the general public alike in recent years. Despite these criticisms, though, the use of animals in scientific experimentation is a highly regulated practice, but even these safeguards fall far short of providing any ultimate protections for laboratory animals and calls for an end to the practice continue today. Nevertheless, laboratory animals are big business and the industry continues to expand in response to increased demand from the scientific community. One company that has enjoyed a successful run by providing these products is Charles River Laboratories, a Massachusetts-based company that was founded in 1947 and now competes on a global basis. This paper provides an overview of Charles River Laboratories and the industry in which it competes; current science challenges facing the company; economic and industry concerns; financial, marketing and ethical considerations; relevant regulatory issues involved the use of laboratory animals; and, legal and strategic planning issues. A recap of the company's current management and leadership cadre is followed by a discussion of challenges in its consulting and staffing services. A summary of the research and salient findings are presented in the conclusion.

Review and Analysis

Company Overview.

The Market Guide profile for Charles River Laboratories International, Inc. reports that, together with its subsidiaries, the company provides solutions that advance the drug discovery and development process, including research models and associated services, and outsourced preclinical services worldwide. Charles River Laboratories, Inc. (hereinafter alternatively "the company" or "Charles River"), operates in two segments as shown in Table 1 below:

Table 1.

Charles River Laboratories' current business segments.

Segment

Description

Research Models and Services (RMS)

This segment involves in the production and sale of research models, principally genetically and virally defined purpose-bred rats, mice, and other rodents for use by researchers to pharmaceutical and biotechnology companies, government agencies, and hospitals and academic institutions. This business segment also offers research model services, including transgenic, laboratory, consulting and staffing, and preconditioning services. In addition, RMS offers vaccine support and in vitro technology products for testing of medical devices and injectable drugs. The RMS segment accounted for almost half (48.7%) of the company's net sales in 2006, which includes sales of research models, transgenic services, laboratory services, preconditioning services, consulting and staffing services, vaccine support and in vitro technology (primarily endotoxin testing). Net sales for this segment increased 2.4% compared to 2005, due to increased research model production and in vitro sales, partially offset by lower large model and transgenic sales as well as reduced spending by certain of our large pharmaceutical customers. Unfavorable foreign currency translation decreased the net sales gain by 0.4%. The company experienced declines in both the RMS gross margin and operating margin, (to 41.6% from 42.8%, and to 28.7% from 31.8%, respectively), due primarily to the impact of stock option expense and the impact of lower large model and transgenic sales.

Preclinical Services (PCS)

This business segment engages in the discovery and development of new drugs, devices, and therapies. It offers toxicology studies; pathology services; bioanalysis, pharmacokinetics, and drug metabolism services; discovery support; biopharmaceuticals services; and clinical services, including Phase I trials in healthy normal and special populations.

Source:

Charles River Laboratories, 2007 & Form 10-K, 2007.

Charles River Laboratories was established in 1947 and is currently headquartered in Wilmington, Massachusetts (Charles River Laboratories, 2007).

According to the company's most recent (February 27, 2007) annual report, Charles River Laboratories is a leading global provider of solutions that advance the drug discovery and development process, including research models and associated services and outsourced preclinical services, which include Phase I clinical services. Further, the company partners with global pharmaceutical companies, a wide range of biotechnology companies, as well as government agencies, leading hospitals and academic institutions throughout the world in order to bring drugs to market faster and more efficiently (Form 10-K, 2007).

The annual report also notes that Charles River offers a:

wide array of tools and services enables our customers to reduce costs, increase speed and enhance their productivity and effectiveness in drug discovery and development. We currently operate over 80 facilities in 15 countries worldwide. We have been in business for 60 years. We have built upon our core competency of laboratory animal medicine and science (research model technologies) to develop a diverse and growing portfolio of services which address drug discovery and development in the preclinical arena, including Phase I clinical studies (Form 10-K, 2007, p. 2).

Science Challenges.

In spite of its fairly recent origins, there have been a number of important and valuable discoveries made in the field of biotechnology in recent years that have fueled demand for the company's products (Demaine & Fellmeth, 2002). Indeed, an analysis of the peer-reviewed literature for "Charles River Laboratories" showed dozens and dozens of scientific studies that use the company's products for their experimentation (pers. obs.). By any measure, scientific experimentation in any setting is a veritable crapshoot, and the product line being marketed by the company does not stand much of a chance of surviving the rigors of their intended use whatever it might be. Therefore, because of the nature of the industry in which it competes, Charles River is on some shaky ethical ground when it comes to justifying how its animals are bred and for what scientific purposes they are intended. In this regard, Donnelly (1990) emphasizes that, "Several ethical dilemmas arising from the very nature and limitations of science are inescapable. For example, it has been forcibly argued that animal experimentation leads to important theoretical and practical results, benefiting both humans and animals. But it is also undeniable that many experiments lead nowhere, despite the animal suffering and loss of life" (emphasis added) (p. 8). Therefore, in the final analysis, Charles River Laboratories competes in a legitimate industry that makes substantive contributions to the scientific community in a process that has been shown time and again to have proven benefits for humanity. Until and unless viable alternatives to the practice are identified in the future, perhaps through further innovations in computer modeling applications that can mimic or even replace animals in scientific experimentation, it is reasonable to assume that the ethical considerations involved notwithstanding, the company will continue to enjoy the same success that it has enjoyed to date.

Economic and Industry Concerns.

According to Davies, Hobday and Prencipe (2003), "Biotechnology is a new industry compared with the PC industry. It may never have as wide a spectrum of specialist enterprises. Nevertheless, the biotech industry of Massachusetts has a number of features of an open-systems geographical cluster" (p. 215). These attributes of the company's current headquarters are described further in Table 2 below.

Table 2.

Attributes of Charles River Laboratories' current geographic location.

Attribute

Description

Massachusetts companies are represented in all of the diverse collection of interrelated product-application segments that make up the biotech industry

These include medical therapeutics, human diagnostics, genomics, medical devices, agribusiness, scientific equipment supplies, scientific services, and others; many of these firms predate the revolution in science that established modern biotech.

Massachusetts is home to previously existing specialist companies that have redefined their mission to capture opportunities from biotechnology

Many of the companies that are members of the Massachusetts Biotechnology Council were established long before the biotechnology industry appeared (2000); examples include: Advanced Instruments (1955), Corning (1904), Honeywell (1904), Harvard Apparatus (1904), Instrumentation Laboratory (1959), Micro Video Instruments (1964), Orion Research (1964), Osmonics (1969), VWR Scientific Products (1854), Abt Associates (1965), and Charles River Laboratories (1946).

The region in which the company is situated is characterized by a rapid turnover of firms, both entering and exiting.

This trend has facilitated the conversion of new technologies into viable product applications.

Massachusetts has a unique collection of specialist 'tools' companies.

Many of the tools revolutionizing the pharmaceutical discovery and development process -- genomics, bioinformatics, and combinatorial chemistry -- have been invented and continue to flourish in this region"; further, "It is no wonder that a number of the world's major pharmaceutical companies have chosen to locate research and development facilities in the Boston area" (p. 215).

Source: Davies et al., 2003, p. 215.

Financial Considerations.

The company continues to enjoy healthy returns on investment and is outperforming or maintaining pace with its major competitors today. A recapitulation of salient financial metrics and performance indicators is provided in Table 3 and Figure 1 below.

Table 3.

Direct Competitor Comparison.

Category

CRL

DGEN.PK

PRXL

Pvt1

Industry

Market Cap:

3.19B

14.44M

1.10B

Employees:

Qtrly Rev Growth (yoy):

5.20%

24.90%

10.90%

Revenue (ttm):

1.06B

2.40B1

10.91M

Gross Margin (ttm):

39.07%

27.53%

97.21%

EBITDA (ttm):

87.56M

16.62M

Oper Margins (ttm):

17.78%

6.09%

Net Income (ttm):

35.28M

600.00K1

18.59M

EPS (ttm):

P/E… READ MORE

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