Bracing performances from the Research Models and Services (RMS) business and Preclinical Services (PCS) in particular fuelled another quarter of high double-digit growth for Charles River Laboratories, as the US-based contract research organisation (CRO) heralded a strong finish to “a tremendous 2007”.

Net sales from continuing operations during the fourth quarter were US$318.0 million, up by 17.0% on the same quarter of 2006. Charles River reported operating income of US$52.1 million for the quarter ended 29 December 2007, 15.5% higher than in last year’s period.

Net income from continuing operations rose by 22.5% to US$38.9 million, delivering earnings per diluted share of US$0.55 (US$0.47 in Q4 2006). Taking into account a net loss of US$2.0 million from discontinued operations in the latest quarter, net income was 4.9% ahead at US$36.9 million, giving diluted earnings per diluted share of US$0.52 (US$0.52).

For the full year, net sales from continuing operations increased by 16.3% to US$1.23 billion, while operating income jumped 20.7% to US$227.2 million. Net income from continuing operations was 25.8% higher at US$157.6 million and earnings per diluted share were US$2.29 (US$1.79) on this basis. Factoring in losses from continuing operations (US$3.15 million in 2007, US$181.0 million in 2006), net income for 2007 was US$154.4 million compared with a net loss of US$55.8 million for 2006.

Charles River has refocused on its core business of early-stage drug development following an unsuccessful detour into fully fledged clinical research services, spearheaded by the $1.5 billion acquisition of Inveresk in 2004. Discontinued operations for the report periods included both the Interventional and Surgical Services business, whose closure was finalised in the third quarter of 2007, and the Phase II-IV clinical services business, which Charles River sold to Kendle International in August 2006.

PCS sales growth
Fourth-quarter sales in the PCS segment were US$172.9 million, an increase of 20.0% year on year that mainly reflected continued strong demand from pharmaceutical and biotechnology customers for general and specialty toxicology services. The addition of Northwest Kinetics’ Phase I clinical services business, acquired by Charles River on 30 October 2006, also contributed to sales growth.

Operating income in the PCS business slipped by 1.5% to US$22.7 million and the operating margin was 13.1% versus 16.0% in the fourth quarter of 2006. Charles River blamed the additional costs associated with its transition to new preclinical facilities in Massachusetts and Nevada, US, as well as the negative impact of foreign exchange in Canada. In the latest quarter the new Massachusetts facility reported a full quarter’s costs compared with minimal costs in the prior-year period, while operating costs were also incurred at the Nevada facility, the company pointed out.

In the RMS segment Q4 sales improved by 13.7% to US$145.2 million, driven by strong demand for research models in the US and Europe, as well for transgenic services and in vitro products. Operating income rose by 20.4% to US$39.3 million and the operating margin widened from 25.6% to 27.1%.

James Foster, chairman, president and chief executive officer of Charles River Laboratories, said the quarterly and annual results testified to “our continued focus on our core competencies of laboratory animal medicine and science and regulatory-compliant preclinical services, coupled with aggressive investment to expand and strengthen our infrastructure to meet our clients’ needs”

As a result, he added, “we are better positioned, both today and for the future, to partner with our clients at this critical inflection point when they are increasingly adopting strategic outsourcing as a means to improve the efficiency and cost-effectiveness of their drug development efforts”.

Charles River has reaffirmed its recently issued guidance for sales growth of 10% to 13% and earnings per diluted share of $2.59 to $2.69 this year.