Strong sales growth from the Research Models and Services and the Preclinical Services businesses helped lift sales from continuing operations by 14.6% to $291.2 million at a refocused Charles River Laboratories International in the first quarter of 2007.

Net income from continuing operations was $37.2 million, up 30.5% on the first quarter of 2006. Excluding one-off items such as a $7.9 million charge for amortisation of intangible assets, stock-based compensation related to acquisitions and a $800,000 charge arising from the group's decision to accelerate its exit from a preclinical services facility in Worcester, Massachusetts, first-quarter net income from continuing operations would have been $43.2 million compared with $34.8 million in the 2006 period.

In March, the US-based contract research organisation opened a new preclinical services facility in Shrewsbury, Massachusetts, and the transition from Worcester to Shrewsbury is now expected to be completed by the end of 2007.

A focus on early-stage development

Last year saw Charles River regroup around its core business of early-stage drug development. A diversion into fully fledged clinical research services, spearheaded by the $1.5-billion acquisition of Inveresk in 2004, proved ill-considered and ended with the disposal of Charles River’s Phase II-IV clinical operations to Kendle International in August 2006.

The first-quarter results reflected that sale, with the Phase II-IV business counted as discontinued operations for 2006. Discontinued operations in both the 2006 and 2007 quarters included the Interventional and Surgical Services business, which Charles River is in the process of closing.

“The actions we took last year to focus on our core businesses and improve our operating efficiency are reflected in our stronger sales and earnings growth,” commented chairman, president and chief executive officer James Foster. “The continuing robust demand for our products and services confirms our confidence in the outlook for the year, and we are reaffirming our sales and earnings guidance for 2007.”

Outlook positive

The guidance is for net sales growth of 9%-12% from continuing operations, giving full-year sales of $1.16 billion to $1.19 billion. Earnings per share are expected to be between $2.11 and $2.21.

In the latest quarter, Charles River’s Research Models and Services business generated sales of $143.1 million, 10.9% more than in the first quarter of 2006. The CRO cited strong demand for research models from large pharmaceutical customers, increased demand for Transgenic Services and higher sales of in vitro products.

As expected, sales of large research models grew significantly as shipments delayed in the fourth quarter of 2006 due to an extended quarantine were released, the group noted. The RMS segment’s operating margin widened from 31.4% to 32.9%, mainly thanks to higher Transgenic Services revenue and large-research-model sales.

The Preclinical Services segment brought in first-quarter sales of $148.1 million, an increase of 18.3% year on year that was driven by continuing robust demand for general and speciality toxicology services from pharmaceutical customers, as well as the acquisition of the Northwest Kinetics Phase I clinical services business in October 2006.

The PCS segment’s operating margin improved from 11.0% to 15.8% due to higher sales, improved operating efficiencies and lower amortisation of intangible assets related to acquisitions, the company said.