Charles River Laboratories International, Inc. Morgan Stanley 24th Annual Global Healthcare Conference
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Important disclosures, please see Morgan Stanley Research Disclosures website at www.morganstanley.com/researchdisclosures. Thank you both for being here. Great to have you both.
Thank you. Thank you. Thanks for having us.
Birgit, you took over the role of CEO from Jim in May. Four months now into this new role, how has that transition been so far? You were obviously at Charles River for quite some time beforehand across different responsibilities there. So maybe, what surprised you leading the ship?
Yeah. So the transition has been very smooth. As you said, I spent nearly my entire career at Charles River, and I know Charles River really well. So I know our strengths, but I also know where we need to be faster and sharper, and had a great transition with Jim. So I was really able to prepare myself, give it a lot of thought. But what I did in addition was really looking to see that I get more feedback from our stakeholders. So I spent the last four months literally visiting over 40 of our sites in seven countries. I met with a lot of the shareholders, met with our board and a lot of our clients.
What that allowed me to do is really double down on the confidence that I have that Charles River is in a great position at this stage to really scale up, accelerate as demand comes back in the industry. It allowed me to validate that our strategy, that we actually will talk about quite a bit next week at our Investor Day, called Pathway to Purpose, is the right strategy that will accelerate revenue growth, bring margin expansion, and just accelerate shareholder value. So that was great. Not a surprise, but really good to see and get that feedback and make sure that we are on the right track.
Amazing. Glenn, you have also joined Charles River pretty recently. It will be great to hear a bit more about your five months or so in the role.
Sure. I have been with Charles River now for about five months as Chief Financial Officer. I would just say it is a complex business, so is the whole drug development process. I am up to speed and learning on a lot of different things and have gotten out to many of our sites. I have been out to, I think, 16 or 17 sites now. That is going really well. I am very fortunate to be joining the company at this point in time. If you look at our business today, we have differentiation when you look at the breadth and depth of our portfolio. We have scientific expertise that I would say nobody else has in the industry.
We are at this inflection point for our business, which is happening here starting in the second half of 2026, where we are going to see significantly better financial performance, both top line, margin expansion, earnings per share improvement, and so forth. Fortunate to be joining the business at a good time. We have done a lot of good things around the portfolio, which are now essentially complete with the divestitures of our CDMO business, some smaller assets in discovery, and we have also acquired a large NHP farm. We are well-positioned here to see better performance starting in the second half of the year, and I am happy to be here.
Fantastic. A lot to discuss, but maybe DSA we can begin with. Underlying trends there have been really strong. A good turnaround, three consecutive quarters now of a north of one book-to-bill. How would you characterize the demand drivers here? How much of the improvement is coming from the overall environment versus internally at Charles River? How are you driving those better win rates? Maybe just parse out those two dynamics.
Yeah, certainly happy to. What I would say is that both of those dynamics play a role. The industry backdrop matters. We all know funding has improved. Pharma is back to work. We are seeing a lot of our internal metrics going in the right direction. Proposal rates increase, bookings increase, and revenue is back to growth modestly in the second quarter, but that will accelerate. Definitely, the demand is improving. We do not expect a straight line, but we do expect stabilization and acceleration of that. In addition to that, we have spent considerable amount of time really refocusing on what we do best, where we have the right to win. We have reorganized our sales force and have really been aggressive in terms of winning the work.
What that means is following up on proposals, making sure that we have the best timelines for starting the work, that we have the resources when our clients need them, and that we continue to provide the best science and operate and work in the areas that our clients want us to work in. Glenn already mentioned some of the divestitures. I do think that they have a benefit, not only on the P&L, but also within the organization because it lets us focus on where we really should be working in. Overall, I would say both are important dynamics and both are in our favor right now.
Kallum, let me just add to Birgit's comments. The way we measure commercial execution is our capture rates on these proposals. Are we winning at least as much or even more than we've done in the past and seeing those rates go up? We've seen some pretty good recent trends around that. So when I look at commercial execution, which is a big part of how we measure our internal success, those capture rates continuing to tick up also help a lot in terms of how we measure ourselves.
Got it. Then the small and mid-sized Biopharma clients, I think they've been a big driver of that uplift, at least relative to what we had in the past couple of years. The funding environment helps certainly. How durable do you think trends are from your discussions on the ground with the customers? How much room do you think there is to keep those growth rates as we see them today?
Do you want to take that?
Yeah, I think in general, we've seen pretty broad-based strength across the business when we look at the lead indicators, so both North America and Europe all trending in a very good direction. We look at large biotech, smaller biotech, that's also got very positive trends. Biopharma has gone through the restructuring of their pipeline and portfolio. We've seen a kind of a gradual increase there, I would say, but all moving in the right direction. Some of the very early-stage biotech funding we haven't yet seen in our business. We see that in our CRADL business which is the early-stage funding, and that still is, I would call it, just stable right now.
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