Early-phase specialist Charles River Laboratories joined the ranks of leading US-based contract research organisations (CROs) turning in strong second quarter results, as net sales rose 14.5% to US$352.1 million and operating income improved by 22.2% to US$69.3 million.

The sales growth was above analysts’ estimates and Charles River has lifted its forecast for the full year, partly to take account of an agreement to acquire NewLab BioQuality, a privately held contract service organisation based in Düsseldorf, Germany, for around US$53 million in cash. This transaction is expected to close by the end of the third quarter and NewLab’s sales are projected at US$20-23 million for 2008.

Nonetheless, Charles River’s shares dipped a little on the results, an effect attributed to weaker than expected revenues from preclinical services. The CRO has also tightened up its guidance slightly for earnings per diluted share (EPS) in 2008, mainly to reflect an additional charge resulting from a change in Massachusetts tax law (the company’s headquarters are in Wilmington). Second-quarter diluted EPS were US$0.71 compared with US$0.55 in the same period last year.

In the Research Models and Services (RMS) segment, sales rose by 20.2% over the second quarter of 2007 to US$172.8 million, while operating income was 15.3% higher at US$52.2 million. The operating margin narrowed to 30.2% from 31.5% in last year’s quarter, with Charles River primarily blaming increased operating expenses in Japan, “which are not expected to continue at that level”, as well as a larger proportion of services in the sales mix.

Sales from Preclinical Services (PCS) were 9.6% ahead at US$179.3 million. Quarterly sales gains – in particular at the company’s flagship US facilities in Massachusetts and Nevada states, which benefited from continuing strong demand for general and speciality toxicology services – were partially offset by a less favourable preclinical trial mix and some study delays, as well as capacity restraints at other preclinical facilities, Charles River reported.

PCS operating income rose by 5.2% to US$28.8 million but in this segment too the operating margin was below the level achieved in Q2 2007. The CRO pinned the margin decline from 16.8% to 16.1% on additional costs associated with the transition to a new preclinical facility in Nevada and the negative impact of currency translation in Canada.

Guidance for full-year sales growth has been adjusted upwards from 10-13% previously to 12-14%. The projected range for earnings per diluted share in 2008 is now US$2.59-US$2.65. It was US$2.59-US$2.69 before, but a US$0.04 charge has been levied for the revaluation of a deferred tax asset for Charles River’s convertible debt.

The agreed acquisition of NewLab BioQuality is expected to complement Charles River Biopharmaceutical Services, which its owner describes as a world leader in cell-bank manufacturing as well as “a premier provider” in determining the potency of biologics as well as in drug-product release testing and clinical-scale vaccine manufacturing.

NewLab brings to the table consulting services to help biopharmaceutical companies meet regional Good Manufacturing Practice guidance on new drugs. It also assists in the design of International Conference on Harmonisation-compliant stability testing programmes to identify suitable stability test methods for proteins and plasmids used in gene therapy.

“Together, Charles River and NewLab expect to provide the most comprehensive service package in the biopharmaceutical industry at a time when biologic drugs are becoming an increasing proportion of therapeutics in development,” the CRO said.