US-based contract research organisation (CRO) Charles River Laboratories International is beginning to see a recovery trend in its recession-hit Preclinical Services (PCS) business, where the company has reduced headcount and is due to suspend operations at a US facility by the middle of this year.

Announcing “better-than-expected” results for the fourth quarter of 2009, chairman, president and chief executive officer James Foster said Charles River was now more confident that the contract research market had stabilised.

Based on “strong preclinical bookings” for the first quarter of 2010 and early positive indicators for the second quarter, “we believe we are starting to see our clients reinvigorate their late discovery and early development efforts”, he commented.
Net sales in the quarter ended 26 December 2009 fell by 5.2% year on year to US$295.4 million, beating the consensus forecast of analysts polled by Thomson Reuters, which was for revenues of US$291.2 million.

Diluted earnings per share on a non-GAAP (Generally Accepted Accounting Principles) basis were also above the analyst consensus. They came in at US$0.49 against US$0.59 in the final quarter of 2008. The expectation was for EPS of US$0.44.

GAAP diluted EPS of US$0.27 for the latest quarter compared favourably with the net loss of US$9.93 per diluted share recorded one year earlier. But that figure included a non-cash goodwill impairment charge of US$700 million or US$10.43 per diluted share. Operating income on a GAAP basis was US$31.9 million in Q4 2009 versus an operating loss of US$650.8 million one year earlier.

PCS sales

Fourth-quarter sales in the PCS segment slumped 20.6% year on year to US$125.9 million. The decline was mainly due to lower market demand from pharmaceutical and biotechnology companies, offset in part by a 2.6% lift from foreign currency translation, Charles River reported. On a non-GAAP basis, the PCS operating margin narrowed to 10.5% from 18.2% in the fourth quarter of 2009.

In the Research Models and Services (RMS) segment, sales were 10.9% ahead at US$152.8 million, helped by a 5.0% boost from currency translation and last year’s acquisitions of fellow CRO PPD’s preclinical services subsidiary Piedmont Research Center and of Finnish discovery services provider Cerebricon, which were completed in May and July 2009 respectively. The non-GAAP operating margin for the RMS business widened to 30.1% from 27.3% in Q4 2009.

For the whole of 2009, Charles River’s net sales declined by 10.5% to US$1.2 billion and non-GAAP earnings per diluted share were US$2.38, down from US$2.89 in 2009. This was in line with the CRO’s latest financial guidance, which was for a 10-11% fall in net sales during 2009 and for non-GAAP EPS of US$2.35 to US$2.47.

Charles River’s guidance for 2010 expects net sales growth to be “in the low single digits”, generating non-GAAP EPS of US$2.20 to US$2.40. The analyst consensus, which usually ignores any special items, is for EPS of US$2.37 on a 3% rise in sales.

According to Foster, the company “weathered” a “very challenging” environment in 2009 through “a focus on stringent cost control and realignment of our business to enhance our support to clients”.

With the positive trends noted earlier, “we anticipate improvement in demand for our broad portfolio of essential products and services in 2010 and, as the year progresses, sales and earnings growth”, he added.