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Re: ATLnsider post# 592811

Friday, 05/12/2023 7:23:33 PM

Friday, May 12, 2023 7:23:33 PM

Post# of 689034
Thanks for sharing ATLnsider. Good info!

Operator
And we'll take our next question from John Sourbeer with UBS.

John Sourbeer
Analyst at UBS Group

Good morning, and thanks for taking the questions. I guess just looking into the CDMO, could you just talk about some of the backlog building there? I know there's been some announcements over the last several months. And just the maturity of some of these programs and you still see the potential for commercial products this year or into next year. And then just one follow-up to an unrelated subject. There's been some press reports on bans of harvesting horseshoe crabs. Just any comment there on what the size of that business is for Charles River? Thanks.

James C. Foster
Chairman, President and Chief Executive Officer at Charles River Laboratories International

So on the CDMO business unit, it has three parts. We have self-therapy manufacturing business which is our largest business and benefits. It's doing quite well, certainly contributing to the prior year. I was just down there, fabulous new facilities, new management team, new sales organization, significant number of new clients, both large and small. We are producing our first commercial products, can't divulge it, but we are. And we have other clients that are moving in that direction. By that I mean either filing with various government agencies in the U.S. and Europe and or telling us to get ready for audits by either the FDA or the EMA. So moving into the commercial direction, we have new production suites which are available. Some of those have been reserved by clients that are either commercial now or I think they will be soon because obviously they don't want to have a product approved and knock it. So we're pleased with the way it's progressing.

We also have a viral vector business in Rockville, Maryland and it also has been enhanced facilities and management team and sales organization, which is strengthening nicely with plasmid DNA business in the U.K. which again has been somewhat transformed. We have centers of excellence in both of those sites now where they used to do multiple things. So CDMO business will have nice growth rates this year, notwithstanding the pre-determined and expected difficult times for Q1. That business will continue to strengthen through each quarter both the top-line and the bottom-line from a comparative basis.

The horseshoe crabs thing, you know that's the reagents that we used for our endotoxin in Charles. I'll remind you that test is used for medical devices and injectable drugs required by law is a lot of release test. I'll also remind you that that was our first major foray into in vitro system, that's actually considered in vitro even now, ease of supply by horseshoe crabs. Those crabs are harvested in variety of places. We have a little bit of pressure in one of our locations in South Carolina, that's lawsuits related to that. I won't get into all the details but the punch line is we have some restrictions in fishing those waters but we also have new locations to harvest, perhaps in other parts of the U.S., which should hold us in good stead. We're also building the inventories nicely. And I guess the last thing I would say is that our technology as opposed to the conventional technology, which is 96 well plate, so we still sell lots of that, but our forward-looking technology is a more sophisticated device, which uses 95% of less crude. So our need for crude which is the collection of horseshoe crabs is actually -- as we transfer the clients new technology, it's actually decreasing all the time, so we're in good shape there.

John Sourbeer
Analyst at UBS Group

Thanks for taking the question.

James C. Foster
Chairman, President and Chief Executive Officer at Charles River Laboratories International
Sure.

Operator
And we'll take our next question from Justin Bowers with Deutsche Bank.

Justin Bowers
Analyst at Deutsche Bank Aktiengesellschaft

Hi. Good morning, everyone. Just sticking with the CDMO and the improvements there. Sequentially I think in the deck, the prepared remarks, you talked about returning to those targeted growth rates. Can you just remind us what those are? And then maybe qualitatively is -- for 2023, are you thinking that that business is sort of above or below the segment growth rates for the year?

James C. Foster
Chairman, President and Chief Executive Officer at Charles River Laboratories International

We're expecting that those businesses in the aggregate again Memphis being the -- by far the largest tease will grow at 20% to 25% which is what we had anticipated when we bought. So that's a great growth rate. Obviously, accretive to the growth rate of the manufacturing segments and at the sort of the scale obviously somewhat accretive to the gross rate in a lot of countries as a whole but as growth, it will be increasingly more accretive. So lots of demand, limited competitive scenario. I mean, some clients are doing itself, but I'm talking about it on a contract basis. We have good competitors, but not a lot of them. Lots of drugs in development that we're working on, the preclinical sector, and then obviously lots of those moving into the clinical domain. Only a few have been approved, still think it's 13 and 14 totally. Went out making one of those, change modified cells cell therapy products, s we're very pleased and proud of that. Early days from a volume point of view, so it's not transformational necessarily from that point of view, but I think reputationally with regard to other potential current clients being comfortable with our capability and also the regulatory agencies have been piloted us, and being pleased with what they saw holds us in good stead. So we're happy with our infrastructure, with the growing client base, with our scientific capabilities, with our ability to sell more effectively. It's a pretty long sales cycles, so we're out and about well in advance. It does a fair amount of price tower in this business, because it's complicated and expensive to set it out, but while you may have some very big companies set their own sharp small and medium-sized biotechs not going to be able to afford it. So like in safety, well, like in all other businesses, we got to need to be paid well for our current and future investment in this space. But we're pleased with the way it's going. We learned a lot last year, we made a lot of fundamental changes in the physical plant and then the scientific and G&A staff. And just getting the word out that this is something that we do as we go to more scientific meetings and present more paper. So we should hit the growth rates that we originally anticipated in our acquisition model.

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