Filed by Charles
River Laboratories International, Inc.
pursuant to Rule
14a-12
of the Securities
Exchange Act of 1934
Subject Company:
Charles River Laboratories, Inc.
(Commission File
No.: 001 –
15943)
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Charles River and
WuXi PharmaTech:
The First Global
Early-Stage CRO
Jefferies 2010
Global Life Sciences
Conference
JUNE 10, 2010
James C. Foster
Chairman, President and CEO
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(c) 2010 Charles River Laboratories International, Inc.
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Safe Harbor Statement
This document 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,"
"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 are based on current expectations and
beliefs of Charles River Laboratories ("Charles River") and WuXi PharmaTech
(Cayman) Inc ("WuXi"), and involve a number of risks and uncertainties 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: 1) the possibility that the companies may be unable to obtain
stockholder or regulatory approvals required for the combination; 2) problems
may arise in successfully integrating the businesses of the two companies
(including retention of key executives); 3) the acquisition may involve
unexpected costs; 4) the combined company may be unable to achieve cost and
revenue synergies or achieve potential revenue growth and non-GAAP margin
expansion; 5) the businesses may suffer as a result of uncertainty surrounding
the acquisition; and 6) the industry may be subject to future regulatory or
legislative actions and other risks that are described in Securities and
Exchange Commission ("SEC") reports filed or furnished by Charles River and
WuXi.
In addition, these statements include the combined financial outlook of Charles
River for 2011 and anticipated use of cash flow, the availability of funding for
our customers and the impact of economic and market conditions on them
generally, the anticipated strength of our balance sheet, the effects of our
2009 and 2010 cost-saving actions and other actions designed to manage expenses,
operating costs and capital spending, and to streamline efficiency, and the
ability of the Company to withstand the current market conditions.
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 the businesses we acquire; the ability to successfully develop and
commercialize SPC's technology platform; a decrease in research and development
spending, a decrease 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 19, 2010 and Quarterly Report on Form 10-Q as
filed on April 29, 2010, as well as other filings we make with the SEC.
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 WuXi. Charles River and WuXi assume no obligation
and expressly disclaim any duty to update information contained in this filing
except as required by law.
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Non-GAAP Financial Measures
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.
Additional Information
This document may be deemed to be solicitation material in respect of the
proposed combination of Charles River and WuXi. In connection with the proposed
transaction, Charles River has filed a preliminary proxy statement and will file
a definitive proxy statement with the SEC. The information contained in the
preliminary filing is not complete and may be changed. Before making any voting
or investment decisions, investors and security holders are urged to read the
definitive proxy statement when it becomes available and any other relevant
documents filed with the SEC because they will contain important information.
The definitive proxy statement will be mailed to the shareholders of Charles
River seeking their approval of the proposed transaction. Charles River's
shareholders will also be able to obtain a copy of the definitive proxy
statement free of charge by directing a request to: Charles River Laboratories,
251 Ballardvale Street, Wilmington, MA 01887, Attention: General Counsel. In
addition, the preliminary proxy statement is and the definitive proxy statement
will be available free of charge at the SEC's website, www.sec.gov. Shareholders
may also access copies of the documents filed with the SEC by Charles River on
Charles River's website at www.criver.com.
Charles River and its directors and executive officers and other members of
management and employees may be deemed to be participants in the solicitation of
proxies in respect of the proposed transaction. Information regarding Charles
River's directors and executive officers is available in Charles River's proxy
statement for its 2010 annual meeting of shareholders, which was filed with the
SEC on March 30, 2010. Information regarding the persons who may, under the
rules of the SEC, be considered participants in the solicitation of Charles
River shareholders in connection with the proposed transaction is set forth in
the preliminary proxy statement filed with the SEC.
This document does not constitute an offer of any securities for sale or a
solicitation of an offer to buy any securities. The Charles River shares to be
issued in the proposed transaction have not been and will not be registered
under the Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold in the United States absent registration or an applicable
exemption from registration requirements. Charles River intends to issue such
Charles River shares pursuant to the exemption from registration set forth in
Section 3(a)(10) of the Securities Act.
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Charles River and WuXi:
A Transformational Combination
o The combination creates the first fully integrated global early-stage
contract research organization (CRO)
o Offers a full range of products and services from molecule creation to
first-in-human testing
o Leverages increasing strategic importance of China
o Drives Charles River (CRL) shareholder value through profitable growth and
higher combined margins
o Expanded portfolio drives increased sales
o Provides compelling value to clients, meeting their needs for early-stage
drug development efforts on a global basis
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Timing of the Acquisition is Key
o Critical inflection point in terms of rapid client consolidation and
infrastructure reductions
o Accelerating need for strategic outsourcing
o ________ Clients are reducing the number of strategic partners to those
with financial strength, scientific depth, global footprint and an
expanding portfolio of services
o As client strategies evolve, next 12-24 months are key to gaining
significant business pursuant to longer-term contracts
o CRL is a stronger organization due to PCS reorganization, sales force
realignment, ERP implementation and Six Sigma initiative
o PCS business has stabilized
o WuXi will achieve its vision of becoming a global integrated service
provider on an accelerated basis
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Charles River Today
o A leading in vivo biology company
o $1.20B in net sales (FY `09)
o Unique portfolio of products and services focused on the research and
development continuum for new drugs
o A multinational company with ~8,000 employees worldwide
o ~70 facilities in 16 countries
o Continuous expansion to support client needs
Client Base Geographic Sales
by Facility Location
Source: Based on Charles River's FY 2009 net sales.
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WuXi Today
o A leading chemistry company
o $270M in net sales (FY09)
o Service portfolio supports clients early with molecule creation, extending
downstream through laboratory and manufacturing services
o Largest China-based CRO with ~4,200 employees worldwide
o One of the largest employers of chemists in the world
o 7 facilities in China and U.S. to support clients globally
ROW
10%
Client Base Geographic Sales
by Facility Location
Source: Based on WuXi's information as disclosed in its Form 20-F filed with
the SEC on 04/23/2010 and other public documents.
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WuXi Overview
Headquarters
o Shanghai, China
Service Offerings
o ________ Laboratory services, consisting of synthetic and medicinal
chemistry, DMPK/ADME, biology, microbiology, in vivo pharmacology,
toxicology, pharmaceutical development, analytical services,
biopharmaceutical, in vitro and in vivo biocompatibility testing and
efficacy testing
o Manufacturing services, focusing on advanced intermediates and active
pharmaceutical ingredients (APIs)
Employees
o ~4,200 employees (~3,800 in China and ~400 in the U.S.)
Facilities
~ 2.0M ft2 of lab facilities and manufacturing space
o China:
o 1.0M ft(2) total research facilities in Shanghai and Tianjin
o 293K ft(2) total cGMP* quality process development and manufacturing
facilities in Shanghai
o 314K ft(2) drug safety evaluation center in Suzhou
o United States:
o 209K ft(2) total three state-of-the-art FDA-registered facilities in
St. Paul, MN, Philadelphia, PA and Atlanta, GA
Customers
o Over 800 clients worldwide including 100+ for pharmaceutical services
and 700+ for biologics and device services
o 100% repeat business from top 10 customers
* Current Good Manufacturing Practice
Source: Based on WuXi's information as disclosed in its Form 20-F filed with the
SEC on 04/23/2010 and other public documents.
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WuXi Overview - History
> Founded
> Established Established Established Established Established
discovery process research bioanalytical service biology
chemistry development manufacturing services (BAS) operation and
and FTE- services services operation analytical
based development
services services (ADS)
> Opened Suzhou toxicology facility
> Completed commercial-scale manufacturing plant
> Passed FDA audit for bioanalytical services
> Passed EMEA audit at all 3 U.S. sites for release testing
Revenue Employees
(US$ in Millions)
$254 $270
$135
$70
$21 $34
2004 2005 2006 2007 2008 2009
No. of Total Employees 4,202
No. of Scientists 3,776
----
2,770 2,818 2,984
1,843 2,106
890 1,244
533 560
48 27 12883 252 332
160
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Based on WuXi's information as disclosed in its Form 20-F filed with the
SEC on 04/23/2010 and other public documents.
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The New CRL: Global Integrated Services
Discovery
Preclinical
Research Models and Services
Clinical
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The New CRL Business Segments
2009 Combined Sales*: $1.5B
DS 15% RMS 44% PCS 41%
DS: Discovery Services
RMS: Research Models and Services
PCS: Preclinical Services
* Based on FY 2009 combined sales, with Charles River's DIS included in DS and
WuXi's U.S.-based Laboratory Services included in PCS. WuXi's information is
as disclosed in its Form 20-F filed with the SEC on 04/23/2010 and other
public documents.
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The New CRL Business Portfolio
---------------------------------------------------------------------------------------------------------------
Discovery Services Research Models and Services Preclinical Services
---------------------------------------------------------------------------------------------------------------
>> A leader in discovery >> The market leader in >> A leader in GLP safety
chemistry services research model production assessment
o Both in Western markets
>> A leading position in >> Largest number of most and China
non-GLP efficacy testing widely used models
o Breadth and depth of
|X| DIS |X| Disease-specific models
specialty services is key
>> Developing position in >>A leading service provider competitive advantage
with broad capabilities >> A leader in worldwide
chemistry-based
biopharmaceutical services
manufacturing |X| GEMS, RADS, CSS
(BPS)
|X| Research and commercial >>A leader in
scale endotoxin detection >> Phase I clinic in U.S.
|X| Endosafe(R)-PTS(TM)
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Drives Profitable Revenue Growth
o ________ Global outsourced discovery chemistry segment is estimated to be
at least $2B in 2010, with a mid-teens CAGR over the next 3-5 years*
o Currently ~20-30% outsourced
o Growth in Discovery Chemistry and other downstream services accelerated by
pharma outsourcing
o Service biology, DMPK/ADME, formulation, process research,
bioanalytical chemistry, manufacturing
o Emerging opportunity for Manufacturing services
o Active pharmaceutical ingredients (APIs) for clinical trials and
commercial-scale manufacturing
o Emerging opportunity for GLP safety assessment in China
* Source: Citigroup Global Markets, Deutsche Bank and Company estimates.
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Enhanced Top-Line Growth Potential by 200 BPS
'11-'13E Growth Potential
Improved demand for
models used in toxicology
Standard ~2% average
annual price increase
Continued double-digit
growth of In Vitro business
-------------------------------------------------
Demand improves as clients
refocus spending on
preclinical compounds and
reduce internal infrastructure
Pricing gradually improves
as capacity fills
-------------------------------------------------
Enhanced outsourcing
penetration for discovery
chemistry and other services
Ramp up of commercial-
scale manufacturing
services
Continued growth of China-
based laboratory services
* Based on 2009 reported revenues, Discovery Services is comprised of WuXi's
business ($270M), excluding its U.S.-based Laboratory Services business ($64M)
and toxicology services, and including Charles River's Discovery and Imaging
Services business (~$20M - partial year for Piedmont and Cerebricon).
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Revenue Synergies
o ________ Cross-selling and combined sales force create incremental
opportunity to drive more business upstream and downstream with existing
and prospective clients based on unprecedented scope of early-stage
portfolio
o Increased presence and scale in the emerging China
market
o Mid-tier and academic accounts where WuXi has limited penetration
and CRL has significant share
o Leverage CRL sales force of ~200 professionals to drive strategic
outsourcing
o Focus on expanding existing client partnerships
o Cross-selling opportunities
These synergies further enhance top-line growth potential
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Significant Cross-Selling Opportunities
---------------------------------------------------------------------------------
1 Large Pharma Top 10 Top 5 Each Top 3 client
-----------------
2 Large Pharma Top 5 Top 10 5%-6% of
combined '09 sales
3 Large Pharma Top 5 Top 5
---------------------------------------------------------------------------------
4 Large Pharma Top 5 Top 5
5 Large Biotech Top 5 Top 10
6 Academic/Government Top 5 **
7 Large Pharma Top 10 Top 5
---------------------------
8 Large Pharma Top 10 Top 10 WX holds more
9 Large Pharma Top 10 ** significant presence
10 Large Biotech Top 10 ** CRL holds more
11 Large Pharma Top 20 Top 10 significant presence
12 Mid-tier Pharma Top 20 Top 5 Similar exposure
13 Mid-tier Pharma Top 20 ** for CRL and WX
14 Large Pharma Top 20 ** ** Less than 1% of WX
15 Large Pharma Top 20 Top 10 '09 sales (or no sales)
---------------------------
16 Large Biotech Top 20 **
17 Mid-tier Pharma Top 20 **
18 Large Biotech Top 20 **
19 Mid-tier Pharma Top 20 **
20 Large Biotech Top 20 **
---------------------------------------------------------
TOP 20 CLIENTS ~45% OF COMBINED '09 SALES
---------------------------------------------------------
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Enthusiastic Client Response
o ________ Senior management of CRL and WX each have reviewed the transaction
with their respective top 20 pharmaceutical and biotechnology clients
o Response has been overwhelmingly positive
o Follow-up meetings have been scheduled/initiated
o ________ Clients are viewing this transformational combination as a
strategic fit for the combined company, which offers them the opportunity
to acquire more products and services from a single, larger entity
o Clients are requesting a more integrated approach to buying end-to-end
services across the drug development continuum
o Value of CRL brand seen as an advantage in terms of standardizing products
and services in China
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Leverages Increasing Strategic Importance
of China
o Supportive of global pharmas who view China as the new frontier for drug
development
o Pharmas are taking advantage of cost leverage by placing chemistry in hina
o Lower cost, highly skilled scientists with advanced degrees
o Emerging opportunities for chemistry, safety assessment and manufacturing
services as clients advance development activities in
China
o Charles River gains largest early-stage provider in China
o Enables clients to choose where to place work
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The New CRL Revenue Base*
Europe 22%
North America 58%
China 15%
ROW 5%
Leveraging the increasing strategic importance of China
* Based on FY 2009 combined sales. WuXi's information is as disclosed in its
Form 20-F filed with the SEC on 04/23/2010 and other public documents.
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2011 Combined Financial Outlook(1)
o Does not include the positive impact of expected revenue synergies from
cross-selling and combined sales force
o Increasingly accretive beyond 2011
(1) Combined financial information is presented as a supplementary non-GAAP
financial measure, and is not intended to be superior to or a substitute
for any financial measure prepared in accordance with GAAP. Furthermore,
combined financial information is not equivalent to pro forma financial
information as may be included in any proxy statement Charles River will
file with the SEC in connection with this transaction. For example,
combined financial information does not give effect to adjustments likely
to be found in pro forma financial information such as increased
amortization and depreciation. Items excluded from non-GAAP EPS consist of
all deal-related costs including repatriation impact.
(2) Reflects weakening of the Euro and British Pound on foreign exchange.
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2011 General Assumptions(1)
o New debt of $950M
o Existing term loan is repaid
o Debt amortization begins in 4Q10 (after close)
o Expect to accelerate repayment with cash flow
o ~4.5% average interest rate on new debt
o Term A rate expected to be LIBOR plus 275bps
o Consolidated CRL non-GAAP tax rate expected to be ~25%-26%
o ~86-87M CRL fully diluted shares outstanding post-close
o Expect to recognize ~$20M of cost synergies
(1) Combined financial information is presented as a supplementary non-GAAP
financial measure, and is not intended to be superior to or a substitute
for any financial measure prepared in accordance with GAAP. Furthermore,
combined financial information is not equivalent to pro forma financial
information as may be included in any proxy statement Charles River will
file with the SEC in connection with this transaction. For example,
combined financial information does not give effect to adjustments likely
to be found in pro forma financial information such as increased
amortization and depreciation. Items excluded from non-GAAP EPS consist of
all deal-related costs including repatriation impact.
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Synergies
Public company and corporate expenses
o Reduction of Board, SOX, audit, legal, stock exchange, insurance and
related expenses
o Elimination of duplicative corporate overhead and support functions
Other SG and A
o Leverage greater purchasing power in vendor procurement relationships
o Streamline duplicative sales and marketing efforts
o Improve working capital management
Refinement of certain operating units
o Specific plans to be determined post-close
Revenue synergies
o Meaningful opportunities exist
o Cross-selling within existing clients - upstream/downstream
o Leverage CRL sales force to expand WuXi's penetration of small/mid-sized
and academic accounts
Expect ~$20M in annual cost synergies, beginning in '11
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Integration Planning Well Underway
o Minimal business overlap simplifies integration process
o Corporate integration team jointly headed by:
o CRL: David P. Johst, EVP, Human Resources, General Counsel and CAO
o WX: Edward Hu, COO
o Nine operational sub-teams already established and meeting to develop
100-day plan to be implemented immediately following close
o Primary focus on revenue synergies
o Maximize sales organization
o Cross selling opportunities
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Management Continuity
o Top WuXi executives to join CRL management team (3-year employment
agreements)
o Ge Li, PhD: Corporate EVP and President, Global Discovery and China
Services
o Joins CRL Board, along with two additional directors chosen by WuXi
o Founded WuXi in 2000; previously helped found Pharmacopeia; PhD in
organic chemistry from Columbia University
o Edward Hu: Corporate SVP and General Manager, Global Discovery and
China Services
o 11 years of U.S. pharmaceutical/biotech experience; held managerial
positions at Merck and Biogen Idec; Chief Operating Officer at Tanox
o Shuhui Chen, PhD: Corporate SVP and General Manager, Chemistry Services and
Chief Scientific Officer, China
o 13 years of U.S. pharmaceutical/biotech experience at Vion, Eli Lilly
and Bristol-Myers Squibb; PhD in organic chemistry from Yale
University
o Suhan Tang, PhD: Corporate VP and General Manager, Manufacturing Services
o 7 years of U.S. pharmaceutical experience at Schering-Plough; PhD in
organic chemistry from Columbia University
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Cultural Fit
o WuXi is a client-focused service organization
o Excellent client retention
o 100% retention of top 10 clients ('07-'09)
o ~90% of WuXi's sales generated from US and European clients
o WuXi shares CRL's employee-centric culture
o Scientific depth and expertise differentiates CRL and WuXi from the
competition
o WuXi has ~2,000 scientists with advanced degrees
o CRL has ~500 scientists with advance degrees
o WuXi operates a "Westernized" culture
o Most of management team has graduate degrees from U.S. universities
and significant work experience at U.S. pharma and biotech companies
o NYSE-listed company, foreign filer with the SEC and uses a "Big 4"
auditor (Deloitte and Touche)
o SOPs and client communications in English
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Transaction Timeline
o Preliminary proxy statement filed June 1, 2010
o Voluntarily withdrew initial HSR filing June 8, 2010 and intend to re-file
today (June 10)
o Procedural step to provide the FTC with an additional 30 days to
review
o ________ Still on track to close by 4Q10, subject to approval by each
company's shareholders and the satisfaction of customary closing conditions
and regulatory approvals
o Shareholder approval process:
o SEC review process (early Summer), followed by
o Cayman Courts review process
o Initial court filings (early Summer)
o Mailing to shareholders (mid-Summer) (both companies)
o Shareholder meetings (late-Summer) (both companies)
o Final Caymans Courts approval (late Summer/early Fall)
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A Transformational Combination
o First fully integrated global early-stage CRO
o Overwhelmingly positive response from top 20 clients
o Creates opportunities for substantial revenue synergies due to unique
portfolio and global footprint
o Generates profitable revenue growth, driving long-term return on investment
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Accelerating Drug Development. Exactly.
CRL
LISTED
NYSE
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(c) 2010 Charles River Laboratories International, Inc.
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