The 2002 Globe 100
All the charts
1. C H A R L E S R I V E R L A B S
'The Mouse Company' roars
But it's more than animals at a transformed Charles River
By Naomi Aoki, Globe Staff, 5/21/2002
But as the cost and challenges of drug discovery mount, the Wilmington firm is transforming into more than an animal company, assembling under its roof a growing array of tests and services for drug research.
In the process, the company leapfrogged to the top spot in this year's Globe 100 ranking. The feat is all the more impressive because 2001 was the first year Charles River was eligible for The Globe 100, having become a publicly traded company in August 2000.
"We're selling more products and services to the same customer base," said chief executive Jim Foster. "We're not betting on any one drug or company. We're helping everyone discover drugs. It's a very focused and powerful niche."
Last year, the company increased its revenues by more than 50 percent, generating sales of about $465 million at a 20 percent profit margin. The surge was driven by two large acquisitions, which added $100 million to revenues, as well as by the continued growth of the company's existing businesses.
The acquisitions of Primedica Inc. and Pathology Associates International Corp. added 1,200 employees and dozens of new services to the company's portfolio, mainly focused on animal and laboratory tests that show how safe a drug is likely to be and how it will interact with the body.
Such information is required by regulators before a drug can be tested in people, and is of growing importance to the drug industry. Analysts believe Charles River is well positioned to reap the benefits of the fast-growing field, known as preclinical research.
"Drug companies are outsourcing more of their early research needs," said David Windley, an analyst with Jefferies & Co. "More drugs are coming through the preclinical pipeline. And more and larger tests are being done on those drugs."
Even the core animal business, now 40 percent of the company's revenues as opposed to 80 percent five years ago, grew at a healthy clip last year, posting a 15 percent increase over 2000. And though Foster expects that business will continue to shrink as a percentage of revenues, its importance to the company should not be underestimated.
"The animal business is the basis of the company," Foster said. "It's the basis on which we've established relationships with our clients, on which we've built our reputation, and it enhances our ability to sell new products and services to those same clients."
Over the last six years, Charles River has made 18 acquisitions, most of them small, to add services and products that help its customers speed drug discovery. Foster's aim is to turn the company into the leading supplier of tests for drug research -- whether they come in the form of test tubes, petri dishes, or lab animals.
Foster believes the difference between animal and nonanimal tests is not as great as it would seem. Both are used by the same group of customers to reach the same end -- to discover drugs as quickly and effectively as possible. And Foster believes Charles River's reputation and infrastructure will give the company an edge.
Historically, drug researchers mixed chemical compounds and put them into mice or other lab animals to evaluate their potential as drugs. Little was known about the compounds beforehand, and the process was largely hit or miss. To study their effects, animals were killed and dissected.
As science advanced, however, researchers were faced with a growing number of possibilities. Studying them all in animals simply became an economic impossibility. Researchers need to narrow the field before moving into animal tests, reserving them for only the most promising candidates.
"There is much more involved in drug development today," Foster said. "We're helping researchers be more efficient and get drugs to market. We're a bigger partner than we used to be, and we will be an even bigger partner in the future."
Many of the services Charles River has added stem from the expertise it has built up over decades producing and supplying lab animals to drug researchers. The fastest-growing piece of its business, for example, is a service it provides for drug companies breeding and sheltering mice that have been genetically altered to mimic human diseases. The animals belong to the companies, but rather than incur the expense of a specialized animal facility they hire Charles River to care for them.
Charles River Labs also has added a number of tests to its portfolio, allowing the firm to run a whole range of animal and lab analyses that customers need to gain regulatory approval for clinical trials. It has a staff of experts in drug-safety testing and regulatory affairs who work as consultants to biotech companies, helping them meet the regulatory requirements for clinical trials.
In all of these businesses, Foster said, the company is committed to growing at least 15 percent a year and delivering 20 percent profit margins. On top of that, Charles River is likely to continue layering on acquisitions to broaden its offerings.
"It's a natural evolution of where we started," Foster said. "The same client wants more of these services and increasingly wants to outsource them."
In diversifying its business, however, analysts said Charles River has not made the mistake of trying to become a one-stop shop. Instead, it has acquired companies and technologies that fit with its strategic focus and are among the fastest-growing segments of the preclinical research field.
The management team is detailed in its research and planning, and steadfast in its execution, they said, producing a successful track record of picking and implementing acquisitions. The company has met or beaten Wall Street's financial expectations every quarter since going public. And more often than not, it improves the profitability of the businesses it acquires while growing its existing businesses.
"They haven't made any false steps," said Michael Martorelli, a research analyst with Investec PMG Capital. "They have facilities around the world, solid management, good solid finances. We're always looking for flaws. But in this case, I haven't found any."
Naomi Aoki can be reached at email@example.com.