UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15 (d) of the
Securities Exchange Act of 1934
January 7, 2013
Date of Report (Date of earliest event reported)
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
(Exact Name of Registrant as specified in its Charter)
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Delaware
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001-15943
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06-1397316
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(State or Other Jurisdiction
of Incorporation)
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(Commission File Number)
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(I.R.S. Employer
Identification No.)
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251 Ballardvale Street
Wilmington, Massachusetts 01887
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(Address of Principal Executive Offices) (Zip Code)
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781-222-6000
(Registrant’s Telephone Number, including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 7.01.
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Regulation FD Disclosure
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The following information (including Exhibit 99.1) shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
On January 7, 2013, Charles River Laboratories International, Inc. (the “Registrant” or “Charles River”) issued a press release which announced that it had closed the acquisition of Vital River, the premier commercial provider of research models and related services in China. In addition, the Registrant will be presenting at the J.P. Morgan 31st Annual Healthcare Conference in San Francisco, California, on Tuesday, January 8 th , at 10:00 a.m. PT (1:00 p.m. ET). Management of the Registrant intends to present an overview of the Registrant’s strategic focus and business developments. Included in this overview will be information related to the effect of the Vital River acquisition on Charles River’s 2013 guidance. In advance of the presentation, the Registrant has posted the accompanying slide presentation on the Investor Relations section of the Registrant’s website. In addition, a copy of the slide presentation is incorporated herein by reference and filed as Exhibit 99.1 hereto.
The slide presentation, attached as an exhibit to this report, includes "safe harbor" language pursuant to the Private Securities Litigation Reform Act of 1995, as amended, indicating that certain statements contained in the slide presentation are "forward-looking" rather than historic. The slide presentation also states that these and other risks relating to Charles River are set forth in the documents filed by Charles River with the Securities and Exchange Commission.
ITEM 9.01.
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Financial Statements and Exhibits
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(a)
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Not applicable.
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(b)
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Not applicable.
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(c)
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Exhibits.
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99.1
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J.P. Morgan 31st Annual Healthcare Conference Slide Presentation, dated January 8, 2013
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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CHARLES RIVER LABORATORIES
INTERNATIONAL, INC.
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Dated: January 8, 2013
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By:
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/s/ Matthew L. Daniel
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Matthew L. Daniel, Corporate Vice President,
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Deputy General Counsel and Assistant Secretary
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Exhibit Index
Exhibit No.
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Description
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99.1
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J.P. Morgan 31st Annual Healthcare Conference Slide Presentation, dated January 8, 2013 |
4
Exhibit 99.1
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J.P. Morgan 31(st) Annual Healthcare Conference
January 8, 2013
James C. Foster
Chairman, President and CEO
Thomas F. Ackerman
Executive Vice President and CFO
[C] 2013 Charles River Laboratories International, Inc.
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Safe Harbor Statement
Caution Concerning Forward-Looking Statements. This presentation includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by the use of words such as "anticipate," "believe," "expect," "will,"
"may," "estimate," "plan," "outlook," and "project" and other similar expressions that predict or
indicate future events or trends or that are not statements of historical matters. These statements
also include statements regarding our projected 2013 financial performance including sales, earnings
per share, free cash flow, operating margin, specified costs, net interest expense, effective tax
rate, profit improvement program savings, annual cost increases, and the expected impact of foreign
exchange rates; the pursuit of our initiatives to optimize returns for shareholders, including
efforts to improve our operating margins, improve free cash flow, invest in growth businesses, and
return value to shareholders; goodwill and asset impairments, including future large model
write-downs; the future demand for drug discovery and development products and services, and in
particular, endotoxin and microbial detection and non-regulated discovery; our expectations
regarding stock repurchases and debt repayment; the development and performance of our services and
products, including the In Vitro Multi-Cartridge System; market and industry conditions including
the outsourcing of these services and spending trends by our customers; the impact of our
acquisitions, including Accugenix and Vital River; and Charles River's future performance as
otherwise delineated in our forward-looking guidance, and particularly our expectations with respect
to sales, future market share and foreign exchange impact. Forward-looking statements are based on
Charles River's current expectations and beliefs, and involve a number of risks and uncertainties
that are difficult to predict and that could cause actual results to differ materially from those
stated or implied by the forward-looking statements. Those risks and uncertainties include, but are
not limited to: the ability to successfully integrate businesses we acquire; the ability to execute
our cost-savings actions and the steps to optimize returns to shareholders on an effective and
timely basis (including divestitures and site closures); the timing and magnitude of our share
repurchases; negative trends in research and development spending, negative trends in the level of
outsourced services, or other cost reduction actions by our customers; the ability to convert
backlog to sales; special interest groups; contaminations; industry trends; new displacement
technologies; USDA and FDA regulations; changes in law; continued availability of products and
supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations;
changes in tax regulation and laws; changes in generally accepted accounting principles; and any
changes in business, political, or economic conditions due to the threat of future terrorist
activity in the U.S. and other parts of the world, and related U.S. military action overseas. A
further description of these risks, uncertainties, and other matters can be found in the Risk
Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 27, 2012, as
well as other filings we make with the Securities and Exchange Commission. Because forward-looking
statements involve risks and uncertainties, actual results and events may differ materially from
results and events currently expected by Charles River, and Charles River assumes no obligation and
expressly disclaims any duty to update information contained in this news release except as required
by law.
Regulation G
This presentation includes discussion of non-GAAP financial measures. We believe that the inclusion
of these non-GAAP financial measures provides useful information to allow investors to gain a
meaningful understanding of our core operating results and future prospects, without the effect of
one-time charges, consistent with the manner in which management measures and forecasts the
Company's performance. The non-GAAP financial measures included in this presentation are not meant
to be considered superior to or a substitute for results of operations prepared in accordance with
GAAP. The company intends to continue to assess the potential value of reporting non-GAAP results
consistent with applicable rules and regulations. In accordance with Regulation G, you can find the
comparable GAAP measures and reconciliations to those GAAP measures on our website at ir.criver.com.
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Charles River Snapshot
[] A leading in vivo biology company
* $1.14B in net sales(1)
[] Unique portfolio of products and services focused on the research and development continuum for
new drugs
[] A multinational company with ~7,500 employees worldwide
* ~64 facilities in 15 countries
Client Base(1) Small/Mid-tier Geographic
Biopharma Sales(1)
Large 20% Europe
Biopharma North America 30%
37% Academic/ 62%
Gov't
Other 24% ROW
Commercial(2) 8%
19%
1) Based on Charles River's FY 2011 net sales.
2) Other Commercial includes CROs, ag/chem, life science, veterinary medicine, CMOs, medical
device and other commercial entities.
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Our Role in Drug Development
Only CRO with a portfolio that spans the early-stage development platform from
research models through preclinical development
IND
NDA
Ability to work with clients at the earliest stages when critical decisions are
made, and move downstream with them through preclinical development
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Our Leading Early-Stage Portfolio
Non-GLP/
Discovery
9%
Leading global franchises in research models
and preclinical services
5 Sales percentages are based on CRL FY 2011 net sales.
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A Leading Global Franchise: Research Models and Services
[] Global leader in breeding and distribution of research models
* Largest selection of the most widely used strains in the world
* 1 of every 2 models sold anywhere in the world comes from Charles River
[] Strategically located in close proximity to clients
* 21 facilities in 8 countries
[] Expertise in biosecurity ensures animals are free of known contaminants, reducing risk to
critical research
Improved confidence due to biosecurity, standardization and continuous availability
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A Leading Global Franchise: Research Models and Services
[] Premier provider of services which support the use of research models in discovery /
development of new molecules
* Services represent ~31% of RMS revenues (FY2011)
[] Genetically Engineered Models and Services (GEMS )
* Contract breeding and associated services for clients' models
[] Insourcing Solutions (IS)
* Management of client in vivo operations
[] Research Animal Diagnostics (RADS)
* Health monitoring and diagnostics
[] Discovery Research Services (DRS)
* Non-regulated efficacy testing and druggability (PK/ADME)
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Discovery Services
[] Combining our discovery, research models and regulated safety assessment expertise enables us
to offer clients an early-stage value proposition that no other CRO can match
* Enables clients to reduce multiple suppliers, in favor of a strategic research partner who
can offer an end-to-end in vivo biology solution
[] Particularly important when large biopharmas are making earlier go/no-go decisions on molecules
progressing to regulated testing
[] Working throughout the early-stage spectrum with Charles River enables clients to reduce time
and costs, while maintaining the high-quality scientific expertise they require
* The reason we were selected by a major global pharma company to provide discovery services
in addition to regulated services
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A Leading Global Franchise: Preclinical Services
[] A global leader in regulated safety assessment services
[] Providing clients with expertise for integrated drug development
* Non-GLP efficacy studies
* Safety studies including general and specialty toxicology
[] Inhalation, infusion, developmental and reproductive, juvenile / neonatal, ocular, bone,
immunotoxicology and phototoxicology
* Expert pathology services
Partnering with clients using flexible solutions to enhance their scientific breadth and depth
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A Leading Global Franchise: Preclinical Services
[] Our Biopharmaceutical Services (BPS) business is a global leader in safety testing and
manufacturing support for large molecules
[] Global platform supports clients in both North America and Europe
[] Biotechs are primary developers of large molecules
* Biotechs are net outsourcers
* Large pharma providing funding for these companies
Partnering with clients using flexible solutions to enhance their scientific breadth and depth
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Endotoxin and Microbial Detection
[] The only FDA-approved in vitro non-clinical endotoxin test
* Used for lot release testing and in-process quality measurement
[] Strategy is to enhance our position as the premier provider of rapid microbial identification
and endotoxin detection products and services to the biopharmaceutical industry
* Intend to enhance capabilities through product extensions and acquisitions, such as
Accugenix
[] Fastest-growing product line (10%+) over last few years
* Expected to continue in 2013 and beyond
[] PTS (Portable Testing System) cartridge-based technology is a significant advance over existing
technology, which has enabled us to take market share
[] MCS (Multi-Cartridge System) launched in 2011 to drive penetration of high-throughput central
testing labs
* Plan to launch the automated MCS Nexus
[] in 1H13
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Key Competitive Advantages
[] Scientific expertise
* Broad portfolio of early-stage products and services
* Continued investment in our capabilities to maintain and enhance our leadership in in vivo
biology
* ~400 science professionals with advanced scientific degrees
* Consistent positive feedback from clients demonstrating the value they place on our
expertise
[] Quality
* Maintain our high standards through rigorous management of key performance indicators
(KPIs) and regulatory oversight
[] Information Technology
* Invested in information technology platforms: ERP, scientific data systems and portals to
enable our clients to access data in real time
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Key Competitive Advantages, cont.
[] Flexibility
* Every client -- whether global biopharma, mid-tier biotech, academic or government
institution -- has individual requirements which need to be addressed
[] Believe flexibility was a critical decision factor that resulted in leading global
pharmas choosing CRL as their strategic partner
* We do not believe that a "one-size-fits-all" strategy is responsive to their respective
needs
* Can provide clients with the customized support they need to achieve the efficiency and
cost effectiveness necessary to bring new drugs to market faster and at a lower cost
Our flexible solutions differentiate us from the competition
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Changing Biopharma Industry
[] Due to patent cliff, biopharma companies are trying to create a more efficient drug development
model
[] Manifested in numerous changes
* Rationalization of therapeutic areas
* Elimination of molecules earlier in the process
* Closure of capacity and headcount reductions
* Readiness to embrace the outsourcing model for the expertise that they no longer believe
needs to be maintained in house
[] Accelerating their investments in biotechnology companies
[] Investing in academic research
[] Outsourcing non-regulated discovery testing in addition to regulated safety assessment
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Inflection Point for Strategic Partnerships
[] We have no doubt that we are at an inflection point with regard to outsourcing by large
biopharma companies
* Discussions concerning additional strategic partnerships are ongoing
[] This is a moment in time when we can take significant market share and maintain it for 3-5
years, and possibly longer
[] Believe our broad, flexible client arrangements allow us to become more embedded with clients
on the same side of the table
[] Strong deterrent to changing partners:
* Effort required by both partners to transfer protocols, create a governance structure,
integrate information technology, and establish a trusted working relationship
[] Our goal is to prevail in the majority of these opportunities
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Strategic Relationship Dynamics
[] We have expanded relationships with the majority of our large biopharma clients
* Strategic partnerships; enterprise agreements; preferred provider relationships
[] These structured relationships incentivize large clients to purchase more across our entire
early-stage portfolio
* Drives greater sales volume across our businesses through favorable pricing
[] Proposals are priced very competitively, based on the volume of products and services
we expect once the business is fully ramped
* Expanded client relationships are profitable, though may be below the consolidated
operating margin
[] Profitability expected to improve as sales expand
[] Strategic relationships represent more than 25% of total sales in 2012
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Mid-Tier Biopharma Clients
[] Mid-tier presents a significant opportunity to drive sales growth
[] Most of the mid-tier biopharma companies maintain limited in-house capabilities
[] Many of these clients outsource to a single provider, so our value proposition is equally
compelling for them as it is for large biopharma
* We can provide the scientific expertise and the ability to help them navigate the
regulatory process
[] Turnover in the mid-tier is considerable due to their smaller pipelines
* However, these clients often stay with the same partner, which means they return to work
with us when their next molecule enters the in vivo development process
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Academic/Government Clients
[] Academic and Government clients expected to be an important contributor to growth in 2013
[] A considerable portion of sales to these clients is based on long-term contracts, which
mitigates the effect of funding constraints
* Models are also low-cost tools which represent a small proportion of the research spend
[] Focused sales efforts are expected to continue to drive sales growth
* Believe we are taking market share
[] Highest-quality products and services at a marginal price premium
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2013 Guidance(1) (from Continuing Operations)
Net sales growth, constant currency 3%-5%
Vital River ~1%
Net sales including Vital River (CC) 4%-6%
GAAP EPS $2.45-$2.55
Non-GAAP EPS $2.80-2.90
Free Cash Flow $165-$175M
Capital Expenditures ~$50M
[] PCS sales growth expected to be slightly higher than RMS
* First time since 2008 that we expect to generate PCS sales growth
[] Expect growth in all three client segments:
* Global biopharma
* Mid-tier pharma and biotech
* Academic and government
1) Guidance originally issued on December 12, 2012, and adjusted to reflect the
acquisition of Vital River.
19 See website for reconciliations of Non-GAAP to GAAP results.
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2013 Operating Margin Outlook
[] Expect 2013 non-GAAP operating margin to be similar to the anticipated 2012 level
[] 2013 operating margin drivers
Price, Volume and Mix + +
Profit Improvement Program savings + +
-- Expect ~$20M in incremental cost savings in 2013
Annual cost increases [] [] []
- Merit-based salary increases / general cost inflation
Strategic Relationships
- Start-up costs and lower sales during initial transition period, []
but all relationships are profitable
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Growth Drivers - Organic
[] Key organic growth drivers:
* Strategic Partnerships: Flexibly utilizing our unique portfolio to support the individual
needs of large biopharmas
* Discovery Research Services (DRS): Large-scale in vivo outsourcing capabilities in
multiple therapeutic areas
* Endotoxin and Microbial Detection (EMD): Leading provider of rapid endotoxin detection and
microbial identification products and services
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Growth Drivers - Acquisitions
[] Intend to supplement organic growth with selective acquisitions to expand our business in
several areas, including:
* Upstream as clients seek to outsource earlier stages of their R and D programs
* Expand the capabilities or technological expertise of our current growth businesses (e. g.
Accugenix)
* Identifying opportunities to further expand our business geographically (e. g. Vital
River)
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Accugenix Acquisition
[] Acquired the premier global provider of cGMP-compliant contract microbial identification
testing for $17M in cash
* In 2013, expected to add ~1% to net sales and be slightly accretive to both GAAP and
non-GAAP EPS
[] Strengthens the EMD portfolio of products and services with state-of- the-art microbial
detection services for manufacturing in the biopharmaceutical, medical device, nutraceutical
and consumer care industries
[] Accugenix is the acknowledged industry leader in species-level identification and strain typing
of bacteria and fungi recovered from manufacturing facilities
* Proprietary library database identifies over 5,000 species of organisms
[] Intend to enhance our capabilities over the next several years through product extensions and
acquisitions
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Vital River Acquisition
[] Acquired a majority ownership (75%) of Vital River, one of the largest commercial providers of
research models and related services in China for ~$27M in cash
* In 2013, expected to add more than 1% to net sales and be slightly accretive to both GAAP
and non-GAAP EPS
[] Establishes an RMS footprint in China
[] Enables CRL to provide high-quality research models and associated services such as RADS and
GEMS to the emerging China market for drug discovery and development
[] CRL intends to set the quality standards for research models in China, the third-largest
pharmaceutical market in the world
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Building for the Future
[] Internal goals:
* Enhance our in vivo biology portfolio to provide the broadest support throughout our
clients' early-stage drug development process
* Acquire select assets that either expand the products or services we can offer our
clients, or give us a footprint in new geographic areas, or both
* Hone our operating efficiency through restructuring, rationalization of capacity, and
implementation of best practices
* Implement information technology platforms and data portals that are best in class and
provide enhanced data capabilities for us and our clients
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Building for the Future, cont.
[] External goals:
* Focus on gaining market share by offering scientific excellence in innovative and flexible
arrangements that meet each client's specific needs
* Listen to our clients and forge stronger relationships as a partner, trusted for science,
efficiency and cost effectiveness
[] Focus on four key initiatives:
* Drive operating margin improvement
* Improve free cash flow generation
* Disciplined investment in existing businesses with greatest growth potential
* Return value to shareholders
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF SALES GUIDANCE (from Continuing Operations)
Fiscal Year Ended
December 28,
2013E
Net sales growth, reported 2.5% - 4.5%
Impact of foreign exchange Approx. 0.5%
Net sales growth, constant currency (before Vital River acquisition) 3.0% - 5.0%
Impact of Vital River acquisition More than 1%
Net sales growth, constant currency (including Vital River acquisition) 4.0% - 6.0%
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP TO NON-GAAP EARNINGS PER SHARE (EPS)
Guidance for the Twelve Months Ended December 28, 2013E
2013E Guidance
GAAP EPS Estimate $2.45 - $2.55
Add back:
Amortization of intangible assets $0.21
Operating losses(1) $0.04
Convertible debt accounting $0.10
Non-GAAP EPS Estimate $2.80 - $2.90
(1) These costs relate primarily to the Company's PCS facility in Massachusetts.
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CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF FREE CASH FLOW (NON-GAAP)
(dollars in thousands, except per share amounts)
Fiscal Year Ended
December 28,
2013E
Net cash provided by operating activities $215,000 - $225,000
Less: Capital expenditures ~(50,000
Free cash flow $165,000-$175,000
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Accelerating Drug Development Exactly.
[C] 2013 Charles River Laboratories International, Inc.
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