Charles River Laboratories (CRL) Morgan Stanley 23rd Annual Global Healthcare Conference summary

Business performance and demand trends

• Strong first and second quarters driven by pent-up demand from large pharma and biotech, with cost structure reductions yielding $75 million annual savings for several years.

• Demand from large and mid-sized biotech remains stable, while smaller biotech faces capital access challenges, impacting overall demand.

• Capacity and staffing are being adjusted upward to meet improved demand outlook, especially in DSA, with operations exceeding the 2025 plan.

• Book-to-bill ratio was above one in Q1 but dropped below in Q2; not expected to exceed one for the rest of the year, with improvement needed from small biotech bookings.

• Cancellation rates rose in Q2 but are seen as normal fluctuations, with backlog levels providing flexibility to manage slippage and cancellations.

Competitive and pricing environment

• Competitive landscape remains stable in terms of number of players, but price competition is increasing, especially from smaller competitors and China.

• Strategic pricing is used to protect or gain share, with complex studies justifying higher prices.

• Outsourcing remains essential for clients due to lack of internal capabilities, with pricing stabilizing and cost reductions being passed on thoughtfully.

• Research model business maintains annual price increases and benefits from mix enrichment, with China showing the strongest growth.

Biotech, academic, and government client dynamics

• Large and mid-tier biotech are well-financed and stable, while hundreds of small biotech companies remain highly sensitive to funding constraints.

• New biotech startups continue to emerge annually, but many are limited in project scope due to capital shortages.

• Academic and government business is relatively small but saw mid-single digit growth in Q2, with NIH funding expected to remain flat.

• Minimal impact from government contract curtailments so far, with NIH investment seen as crucial for innovation.