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Charles River cuts forecasts as profits slump

Published on 11/08/09 at 08:35am

Contract preclinical testing specialist Charles River Laboratories saw its second-quarter sales drop 12.5% to $308 million as demand from pharmaceutical and biotechnology clients continued to be weak.

Net profit fell 30% to $34m, with major cost-cutting drive launched in the first quarter of 2009 not yet having a major impact on the bottom line, partly because of charges related to the restructuring. The company also said it had bought two small companies and forged a new partnership.

Like most of its peers in the contract research sector, Charles River has seen a downturn its revenues and operating profits since the middle of last year on the back of softer demand from customers exercising greater selectivity and caution in bringing new drug candidates forward into development.

The firm recently said that the downturn in spending may be coming to an end, with order books, pricing and inquiry levels 'stabilising', but its latest figures suggest the recovery still has some way to go.

Overall sales at the company were down 13% to $308m. Revenues at its research models and services (RMS) unit fell 4% to $166m, while preclinical services (PCS) fared even worse, down 21% to $143m. It now expects 2009 sales to be down 7-9%, compared with earlier estimates of 2-9%.

"Although continuing softness in demand for both RMS and PCS impacted our second-quarter sales, pricing, inquiry levels and bookings have remained relatively stable through the first half of the year," said chief executive James Foster.

Some weeks back Charles River said it planned to restructure its PCS unit and sales operations along with some headcount reduction and the reduction of performance-based payments, and now seems to be adopting a dual strategy of cutting costs and buying businesses to restore growth.

The company has just bought Finland-based Cerebricon - which specialises in drug discovery services for central nervous system drugs - for $9m in cash, and pathology software firm Systems Pathology for an initial payment of $24m.

The firm also said it has set up a partnership with venture capital firm MPM Capital to develop underfunded compounds with therapeutic promise. The latter deal provides funding to start-up companies which, in time, could become contract research clients for the CRO.

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