Charles River reports better-than-expected Q4 revenue amid weakness in CDMO business

Charles River Laboratories on Wednesday reported better-than-expected revenue of $1 billion in the fourth quarter of 2024, beating analysts’ consensus estimates of $984 million. However, the company’s manufacturing solutions unit underperformed in Q4, driven by weakness in its CDMO business which is expected to continue in 2025.

Overall revenue in 2024 decreased by 1.9%, dropping from $4.13 billion in 2023 to a little more than $4 billion last year. Charles River also provided formal guidance for 2025, projecting that organic revenue will decline by a range of 3.5% to 5.5%, which was below the 3% to 4% decline projection that the company provided last month.

Despite Charles River’s “modestly underwhelming” guidance for this year, William Blair analyst Max Smock in a note to investors highlighted “management’s commentary suggesting that demand trends are stabilizing, with the company not seeing any signs of further deterioration from global biopharmaceutical clients and demand from biotechs trending favorably on the back of the improved funding environment observed in 2024.”

CEO James Foster in a conference call with analysts called Charles River’s performance in Q4 “slightly” better-than-expected and provided an update on the market environment, noting that many of the company’s global biopharma customers “continue to move forward with their restructuring and pipeline reprioritization activities, which are expected to constrain early-stage spending by many of these clients again in 2025.”

At the same time, Foster said its small and mid-sized biotechnology clients in 2024 “continued to benefit from a more favorable funding environment,” compared to the previous two years, and Charles River expects “biotech demand trends will be stable to slightly improved in 2025 versus last year.”

However, Foster said that lower commercial CDMO revenue is expected to reduce 2025 consolidated revenue by approximately 1% and the manufacturing segment’s growth rate by more than 5%, due to the previously announced loss of revenue from two commercial clients in Charles River’s cell and gene therapy business.

“Despite the commercial setbacks, we believe our efforts over the past two years to enhance the CDMO operations have established a solid foundation for this business through investments in facilities, leadership, and scientific expertise,” Foster told analysts.

Foster added that although demand in the cell and gene therapy sector is “not as robust” as it was when Charles River bought the business in 2021, he believes “attractive long-term growth opportunities exist, and we have a healthy pipeline of biotech clients with early-stage clinical candidates ready to help move the CDMO business forward.”    

However, Smock said he was “disappointed by additional commentary in Charles River’s filings noting that, last month, one of its previously mentioned CDMO clients received a complete response letter from the FDA that resulted in a clinical hold on that client’s new drug application and prompted an FDA inspection at Charles River’s facility, which resulted in the company receiving an FDA 483 notice that it is now responding to and remedying.”

Smock warned in his note to investors that “this public disruption could have a chilling effect on new CDMO client demand at a pivotal point right when Charles River was beginning to establish its reputation in the CDMO business.”