In a further sign of the tough environment for contract research organisations (CROs) and for early-stage research services in particular, US-based stalwart Charles River Laboratories International has decided to suspend operations at its Preclinical Services (PCS) facility in Shrewsbury, Massachusetts.

The suspension will occur by the middle of this year, “when ongoing in-life [in vivo] studies will have been completed”, Charles River noted. It intends to resume operations at the Shrewsbury facility “when global preclinical market conditions improve and the Company requires additional capacity”.

Announcing its third-quarter results last November, the CRO revealed another set of cost-saving initiatives that included a 6% staff reduction in its hard-hit PCS segment, where net sales were down by 24% year on year. At the time, Charles River said “continuing soft market demand” for its services was expected to worsen in the fourth quarter, with prospects for a recovery in the second quarter of 2010. The company plans to release its fourth-quarter results on 8 February.

Suspending operations at the Shrewsbury facility should reduce operating costs by around US$20 million in 2010, with an annualised run-rate of about US$25 million, Charles River believes. As a result, it expects to report charges of US$7 million, mainly in the first quarter of 2010, for severance and related costs. An impairment analysis for the Shrewsbury facility awaits completion.

According to Charles River, the suspension of operations is likely to involve some loss of revenue during 2010, although the company “expects to retain the majority of the business and [to] provide the services at other PCS sites”.

Better times ahead

Based on fourth-quarter trends in the preclinical business segment and “positive early indications” for the first quarter of 2010, “we continue to believe that the preclinical market will begin to show some improvement in the second quarter of 2010”, commented, James Foster, chairman, president and chief executive officer of Charles River Laboratories International.

Nonetheless, Foster added, “the extended softness in preclinical market demand for the last fifteen months has resulted in excess capacity throughout the contract research industry and in our own global network of PCS facilities”.

A leaner infrastructure would improve the company’s PCS operating margin while providing sufficient capacity to meet the expected recovery in demand for preclinical services in the biopharmaceutical industry, he said.

Charles River re-affirmed its sales guidance for 2009 and expects earnings per share on a non-Generally Accepted Accounting Principles (GAAP) basis to be above the range provided last November.

At the third-quarter stage, the CRO once again lowered its financial guidance for 2009, forecasting that net sales would fall by 10-11% year on year, compared with the 7-9% decline expected in early August.

The guidance for non-GAAP earnings per share last November was US$2.28 to US$2.32, revised from a prior estimate of US$2.35-US$2.47.