Still Time to Ride the Wave With Charles River

To paraphrase Tina Turner, Charles River Laboratories International Inc. (NYSE:CRL) just keeps rolling, rolling along. But is it too late for investors who missed the boat to come aboard? Not if you believe the 14 analysts offering 12-month price forecasts. They assigned the Boston-area company, which currently trades at just over $159, a median target of $163.50, with a high estimate of $185 and a low estimate of $150, according to CNN Money.


Charles River is in the pharmaceutical business, but it's not a classic drug company in that it does not market any products. Its mission is to offer support in the fields of basic research, drug discovery, safety and efficacy, clinical support and manufacturing. And business is good. The company has been consistently beating earnings estimates and is likely to continue this trend going forward. The better-than-expected results have pushed the stock to an all-time high.

In a Jan. 14 presentation at the JPMorgan Annual Healthcare Conference, James C. Foster, chairman, president and CEO, cited a number of statistics demonstrating the reasons the company is the leading early-stage contract research organization. Among them: Charles River worked on 85% of the drugs the Food and Drug Administration approved last year. Since 2014, the company has doubled its revenue and non-GAAP earnings per share. And the company now holds the number one position in research models, safety assessment and microbial solutions. Foster also emphasized that no one does a better job of working with clients to discover new drugs and move downstream with them throughout early-stage development and to support their safe manufacture.

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Acquisitions have played a key role in Charles River's success. The company has invested more than $2.5 billion in 14 strategic buyouts since 2015. These acquisitions account for more than one-third of the company's revenue.

The most recent addition to the company's fold is cell therapy biomaterials producer HemaCare. Charles River shelled out $380 million to acquire the company, which is expected to boost its work in the growing market for cell therapy. Foster expects approval of 10 to 20 cell and gene therapies within the next five years.

Charles River says its work in the area is currently generating about $100 million a year. But the opportunity is far greater, according to Foster. He said the addressable market for HemaCare's products is expected to jump ten-fold in the next decade, from about $200 million today to nearly $2 billion. The company thinks the addition of HemaCare will enable it to carve out a big chunk of the business.

More good news came out of the JPMorgan conference. Fierce Biotech reported that Charles River is linking up with Takeda Pharmaceutical Co. (NYSE:TAK) to launch multiple integrated programs across the Japanese company's four core therapeutic areas, with the goal of advancing its drugs in the preclinical stage into the clinic and then making them available to patients.

Takeda will pay Charles River an undisclosed one-time, upfront fee under the terms of the deal. However, Takeda said Charles River could earn development payments of $50 million per program.

Disclosure: The author holds no positions in any of the company's mentioned in this article.



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This article first appeared on GuruFocus.