CRL
#No, you won't see it.
There are some costs that are in our forecast, in our guidance.
We anticipate some capital expenditures and some modest operating expenditures to hire some people and get the facility shipshape.
Given the scale of the amount of space that we are opening, and the timeframe over which we're opening, and how strong the safety assessment business is at the current time, you won't see any impact.
In a perfect world, particularly for the [tox] side, we'd like a few large clients to anchor it.
That may or may not happen, <UNK>, but we will see.
I don't think we can actually drive it that way.
Given the types of clients that are interested, it's likely we will have a large pharma/big biotech clients in there.
That's not the way were opening it up though.
We're opening it with non-GLP.
There are host of clients that we will be servicing in that in the facility for those purposes.
We're not going to give the exact amount.
I would say that you should just take it as a relatively modest amount of the facility will be open.
A manageable amount of the facility will be opened, subject to the caveat that if demand is extremely intense, which obviously would be delighted with, we could quite readily open additional portions of it as you may recall.
There are corridors of space, and we can bring those on over time.
The basic HVAC systems will be up and running, but we won't have the GLP quality validation of the infrastructure until we're clear that we're going to have a significant number or meaningful number of GLP quality clients.
We're doing it in a very measured way.
We are excited about opening it, given the amount of business that's nearby.
The safety assessment business is so strong and growing so well and so profitable that we want to do it in a measured fashion.
Have the ability to have additional capacity, have our clients know that, but not bring on so much, so quickly that it adversely impacts our financial results.
Yes.
The trajectory of the business and our rationale for buying it is as strong as ever.
It certainly has opened up much more interesting and meaningful and expanded client conversation with legacy Charles River clients.
We've also had the opportunity to introduce the Argenta BioFocus capability to large Charles River clients and have gotten some work as a result of that.
I would say that the timeframe to negotiate and execute larger integrated deals takes a while.
Not necessarily longer than we thought, but it's probably 12 months to 18 months.
They're complicated.
They're expensive, and they require a lot of strategic input from the client.
We're having lots of conversations.
We're getting a lots of interest in traction.
I'd say the core business is strong.
We've moved into new facilities.
The Argenta and BioFocus, which have been individual entities are working much more closely together.
We brought them into the Charles River fold from a certainly marketing and selling point of view but from portfolio presentation point of view.
We still feel very good about it.
We're committed to not having Shrewsbury be a drag.
AstraZeneca will be at least a financially beneficial going forward as it has been historically.
Yes.
If you're talking specifically about safety assessment, which I think you are, we're getting about 5% price which is compatible with what we saw in the first quarter.
We're getting some pure price.
It's hard to tease it out, maybe 1% or 2%.
And we're getting the benefits of change orders that we're getting from clients which is quite usual for this business.
Last of the four or five years there was less of that because studies were more stripped down.
Studies are is more complex now.
Clients will be in the midst of studies, and they will be excited about the compound, and they will want to drive that study faster and more expansively, and they will add on testing an additional endpoints.
That's part of the pricing increase paradigm.
It's hard to predict where that's going to go.
We're delighted that it's around 5%.
We didn't plan for that in our operating plan.
We didn't think it would be that strong.
Certainly at the beginning of the year, our guidance didn't necessarily contemplate that, but we're delighted to have it.
As I said previously, we're confident in our ability to open Shrewsbury for non-GL purposes without it dragging operating [market.
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It doesn't remind us of the cycle before at all.
I think historical trends and actual results this business are not necessary indicators of anything and not [discloseted] and aren't even helpful.
What we have to think about where we are now.
We have a totally different marketplace where biotech has come of age.
They have drugs and profits and extraordinary pipelines and are principally providing at least half the compounds that are getting to market, many by big pharma.
That's quite different.
We have major infrastructure reductions by many of the pharma companies.
That wasn't the case.
We have huge amounts of funding coming in to biotech clients, not just for the capital markets but directly from big pharma.
We're quite confident that biotech is here to stay, that biotech if you think about the immunotherapies in particular, the really powerful ways not just to treat, but perhaps to cure diseases, including cancer.
I'd say the market dynamics are much better.
Our competitive position is stronger.
We're being actually very careful about the way we open Shrewsbury, probably just because of how painful it was before.
Had we not had that history, I don't know.
Maybe we would be more aggressive with the way we're opening it.
We've got a really strong backlog.
Our space is essentially full.
Our margins are way up.
Demand is extraordinary, getting more price.
I would say we have every indicator that we could.
We continue to take market share.
This is the only facility that's within a stone's throw of major biotech and pharma research, and it's time to open it.
It's just become increasingly clear to us.
We're quite confidence with vision, and we can open the balance of it as quickly or as slowly as the market indicates with demand.
That's also works to our strength.
I'm sorry.
On the what.
You're talking about the one in Europe.
I'm sorry, <UNK>, you'll have to give us a little more insight into the question.
I'll believe that when we see it.
Probably NIH has rarely been fully funded.
Obviously, that would be modestly beneficial to us.
We have a meaningful amount of work that's academic related, directly government or folks funded by the NIH, so that would be great.
I think we'd have a modest benefit of that.
NCI obviously a significant spender in cancer, but I would say they're substantially dwarfed by the pharma companies that are working on oncology.
Happy to see it.
Believe it when we see it.
It's probably a smaller impact for a Company like Charles River which principally commercially oriented than some of the other tools, companies say that sell principally to the academic institution.
No, we really haven't.
We don't expect to.
I get your question.
It's a good one.
It's a really nascent research market, a little bit unsophisticated.
Not a lot of money has gone into it on the research model side, relatively unsophisticated market in terms of understanding quality of animals used.
I don't know what the percentage is in China, but the percentage of the cost to produce the percentage, the animal cost is a percentage of the cost of making a drug is probably, I don't know, a 0.1%.
It used to be pretty used to 1%.
It's probably way below that now.
In China, it's insignificant as well.
We're working hard at bringing quality animals to China as we did in the US, Europe, and Japan.
It's a critical resource in terms of drug development.
I would be surprised if some of that economic headwinds that you're pointing at or two, whether it's stock market, or just general pull-backs on currency, or whatever will have any impact on the way people are purchasing research models.
Thanks, <UNK>.
We're certainly delighted with where our margins are, and recognize that we have more work to do.
Where we are currently is in line, as you said, with what we've talked about as targets.
I do think it's something that we need to think about.
We have always said that from quarter-to-quarter, there will be some variability in our margins due to demand, mix, and things like that.
While we're delighted, and I do think in the near term that margins will continue to be strong, we are continuing to think about where our long-term target should be.
As you mentioned earlier, we are probably seeing a little more price than we thought we would this year.
We are certainly seeing more demand than we thought we would.
I think all of that will play into, as we begin putting together our 2016 plan and having our strategic discussions, we will certainly focus more on those and see where we think we are headed.
What we did, 20% for the quarter, which we were delighted by, it has been our corporate target.
It is at quarter.
We want to first deliver that for a year.
We have ongoing efficiency initiatives across all of our businesses.
We hope to get more price and a better mix.
Directionally, our hope and our goal is to continue to drive margin improvements.
I think it's a really good question because we're in the low 30%, and manufacturing support and over 20% in the DSA business, and already the high 20% in RMS.
We've, at least for the moment, achieved our targets.
We'd like to do it for a sustained period of time, and then we'll take a look at the reality of being able to increase those long-term goal.
It's hard to tease it out.
It's probably closer to a couple of points of spot pricing.
Then the rest are change orders.
<UNK>, a lot of the efficiencies that were obviously put them place, I don't want to say in perpetuity, that was the first thing that popped in, but they will continue without question.
Some of those are larger things like the consolidations we've talked about in Japan and North America, as well as in addition to a number of other efficiencies in barrier rooms or certain areas of production and service.
We did have a nice sequential gain.
We were up very modestly over last year, and as we look to the remainder of the year, we did talk about seasonality as being a mechanism to drive down sequential margin.
I think compared to 2014, I would expect on margins to be up in RMS on a year-over-year basis, but not sequentially.
They're not complete.
We began to roll them out early at some of our sites, and I think there is a meaningful opportunity to get the margin benefits of those across the world.
We are guardedly optimistic that we continue to drive margin improvement in the core research models business, which as you indicated, has been way too manual for probably too long a time.
We're excited about being able to enhance our ability to monitor lots of things more quickly, and costs are the result of that.
Thank you for joining us this morning.
We hope you will join us again on Tuesday, August 11, in New York for our Investor Day.
If you need more information, please give me a call, or send an email to <UNK>.
<UNK>@CRL.com.
This concludes the conference call.
Thank you.
