What's Next for Charles River?

Speaker 1:
Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Charles Rhyee:
Hi, my name is Charles Rhyee, a TD Cowen's healthcare technology distribution analyst, and welcome to the TD Cowen Future Health Podcast. And today we're live at TD Cowen's 46th Annual Health Care Conference here in Boston. And today's podcast is part of our ongoing series that continues TD Cowen's efforts to bring together thought leaders, innovators, and investors to discuss how the convergence of healthcare, technology, consumerism, and policy is changing the way we look at health, healthcare and the healthcare system. And in this episode, I'm excited to be joined by Birgit Girshick, executive vice president and chief operating officer of Charles River Laboratories, and who is also the incoming CEO this coming May. Birgit, thanks for joining us today.
Birgit Girshick:
Thanks, Charles. Thanks for having me on your podcast. I'm really excited to be here.
Charles Rhyee:
Thank you. So obviously we're witnessing major changes here at Charles River with Jim Foster's retirement after over 30 years as CEO. And as you get set to take on the CEO mantle, maybe share for us a little bit sort of your vision for the company going forward.
Birgit Girshick:
Certainly happy to. So first of all, I want to thank Jim Foster for his mentorship and coaching over the years and getting me ready as his successor. Also want to thank our board for their support of me taking on this role. So Jim has created an amazing company at Charles River. We are the industry leader for many of our services, particularly in our safety assessment space. We now for years have been working on over 80% of FDA approved drugs, and I'm very honored to take on this role. So last year, we actually did a in depth strategic review and have presented that to our port and got full approval. I have led this review together with Jim and the senior leadership, and we have started executing on many of the initiatives that were outlined in this and that we have talked to our shareholders and analysts in the last few earnings call about it.
So you already saw a couple acquisitions earlier this year, and we just announced that we signed definite agreements to divest two of our business units in the upcoming months. I'm fully aligned with those initiatives, and I'm going to make sure that we are executing on many of those. And I'm also going to focus on areas such as further M&A to refine our portfolio. We're going to look at where we operate as Charles River. It's generally very beneficial to be at least in the same country than our customers. So we are going to continuously reevaluate where we operate and maybe make some changes in that area. And we're going to modernize how we work. So we have started a few years ago at digital transformation. We then moved into many, many modernization efforts from automation to bringing in AI assisted tools and platforms, and we will continue to do that.
What we want to be is the most efficient partner for our clients, helping them getting drugs to the patient who need them. Those are just a few examples of where we will focus on going forward. And again, I'm very excited to take the company to future growth and create shareholder value.
Charles Rhyee:
That's very exciting to see as we get going. Maybe as you look more broadly, what are some of the biggest changes in the industry maybe that you've seen over the past five years? And how has the company responded to them?
Birgit Girshick:
Yeah, really good question. So the industry obviously has gone through a large amount of change over the last few years. Biotech had a tremendous amount of funding throughout COVID. And then post COVID downturn of biotech funding has all impacted many, many of our clients. Same with pharma. So they had a lot of challenges that they had to overcome with most favorite nation pricing and terrorists and patent cliffs upcoming. And we saw a ton of restructuring, reprioritization of programs. And we do believe that now we are getting into a more stable time with both clientele and can actually refocus on getting back to growth and getting back to bringing drugs to the patient. I do believe that there are actually two trends that came out of this challenging time. One is that every one of our client is looking and re-looking at ways to get drugs to the patient and drugs to market in a more accelerated way.
How can we take time out of drug development timeline? So every meeting I have with clients is exactly about that topic. And what we do at Charles River, we are trying to find ways to take days out of the drug development timeline, take weeks out of it. We have expanded, for example, our laboratories and co-locate them next to our in vivo facilities with more scale, more capacity. So clients can actually do not only their preclinical bioanalysis testing, but also can move with us into their clinical testing. So they don't have to reestablish assays, they don't have to ship samples. Those are kind of the examples that we're looking at. We also had clients that have direct access to their data now where we have a data feed right into the data lakes. And we have spent a lot of time creating collaboration platforms. We have one that's called Apollo.
We have developed that over the last few years, and we do believe that allows us to communicate better with the client and give them insights faster. The second trend is really the inlicensing of assets from China. I believe this will normalize. Seems like we're hearing a little bit of more in licensing going on back in the US, which would be a good thing for us. And I do believe for our biotech industry here in the US. But I think those are two trends that really are defining the industry and where they are today.
Charles Rhyee:
And as we think about, as you've kind of exited this more challenging period, has the needs from customers changed as a result? And is there a difference between... What are biotech customers looking for today that might've been different from before? What is large pharma looking for today that might be different than before?
Birgit Girshick:
Yeah, thanks, Charles. So the way you frame the question is really interesting because when we look at our clientele, we look at the personas, who's making decisions, what are their goals? And what we find, the overarching goals are actually the same. So all our clients, it doesn't matter if it's a pharma company or a biotech company wants to develop with the fastest timeline and the best budget, a drug program, and get it either to the next licensing stage and funding stage, or get it obviously to the patient and into the clinical trial to the patients. The difference is really how they work and what their needs are in terms of collaboration. And that is where for us, client centricity, being flexible, customizing the way we work with each of the client segments comes into play. And that is something that we have done a lot of work on.
We have different organizations helping clients, smaller clients, maybe with their regulatory aspects. And then we have big scheduling organizations that help maybe form our clients with reprioritizing at a constant state their programs when they get data and they need to make changes to their programs. So really it's about how they work, but not necessarily what their goals are.
Charles Rhyee:
Right. Oh, that makes sense. Two major macro trends, I'd say in some ways interlinked is that everyone's paying attention to, particularly for Charles River, I'd say first is AI, but also NAMs. Maybe talk a little bit about how you'll see the company evolve to keep up with both of these.
Birgit Girshick:
I could talk for hours about AI in NAMs. I'm personally very committed to establishing more new alternative methods in our company, bringing them in, using them as a hybrid approach to our in vivo studies and getting better answer and fewer animals on the studies for our clients. And AI is a great tool. I think it has great promise. It's another technology advancement that we all will take advantage of. But at this stage, I think it's very early stage. It's more of an evolution rather than a revolution. So we at Charles River, we use AI in a few different ways, mostly operational, being more efficient for our clients, but we also picked a few scientific questions that we can answer and maybe reduce the number of animals on a study. The industry itself is also in very early stage. There is ton of investment in early discovery, really looking at that optimized molecule, the optimized structure, finding the best target.
And I do think this potentially, eventually, will have a return of investment, particularly when this 10, 12-year process is going through. But at this stage, we're really early. So there's only about 150 AI-assisted drugs in clinical trials today, and it's too early to tell if it actually reduces the timelines. What it would mean for us, I'm actually hoping it will, because for us, once we have better molecules, better drug programs coming into the preclinical safety and regulated work, this would mean more work for us, fewer failure rates and more budget for the client. So they can actually bring more drugs to the market rather than a lot of failure rates. So I'm looking forward to see what we can do as an industry, but I also would say it's very early and biology is just very, very complex and we just need to learn from that.
Charles Rhyee:
I mean, is that really the answer here is I think a lot of people are worried that it could lead to less work, but I would imagine if pharma can get more drugs through the process faster, it's kind of like a more shots on goal kind of concept, like, why would I spend less R&D budget, right? I can do more. Is that fair?
Birgit Girshick:
Yeah, I would say definitely that is very fair to say that the more ROI you have and the more shots on goal you can have, the more they will go for it. There's so many mysteries about disease biology out there and they will go for it. They want to treat more patients and get to know all those diseases that still need to be resolved.
Charles Rhyee:
Yeah, makes sense. As you think forward a little bit, what are some of the biggest opportunities you see for Charles River over the next few years?
Birgit Girshick:
So the biggest opportunity that we have is our relationship with our clients. So as we have moved from being a research model provider to providing services, and we are now absolute critical partner for our customers, our clients do not do the work that we do for them themselves anymore. So when I go to see a client and I have discussions, it is not necessarily about that service that we can provide. It is about how do we help you meet your goals? So the discussions become more and more, how can we collaborate? Can you provide us with a more automated system? Can we transfer a platform to you? Can we get your data into our data lake? Can we collaborate in insights? And I do see that more and more advancing and making our competitive strengths in the industry just second to none. So to me, this client relationship, the client centricity, staying up on advances in technology and automation is our number one goal and our number one benefit here.
Charles Rhyee:
Okay. And maybe last question here, what would you say are sort of the few of your key priorities here in your first year as CEO as we go through the next 12 plus months? And how should investors gauge what success looks like? Certainly.
Birgit Girshick:
So first of all, I will continue to execute on the strategic initiatives that we have outlined. These are creating shareholder value and many of those will deliver growth for us. So for me, one of the most important aspects for this year is returning Charles River to a growth mode and continuing to execute on the initiatives as well as continuing to make Charles River more efficient, more modernized, more scalable, so preparing us for the future. And I'm looking forward doing that.
Charles Rhyee:
I'm sure everyone else is too. Birgit, thank you so much for joining us today. Really appreciate the conversation.
Birgit Girshick:
Thank you, Charles.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.