Seeking AlphaSeeking Alpha

Charles River drops after disclosing supply challenges for animal studies

Charles River Laboratories (NYSE:CRL) was among notable decliners in the S&P 500 on Wednesday after the non-clinical contract research organization announced that a recent DoJ indictment would impact its NHP supplies, an essential tool for pre-clinical studies.

The issue comes after the U.S. Department of Justice criminally charged two officials and a supplier of non-human primates ((NHPs)) from Cambodia, the leading supplier of those animal models to the U.S. and Charles River (CRL).

The company said that despite its global supply sources, given the indictment and subsequent announcements made by the Cambodian government, it expects supply constraints for NHPs imported from that country to the U.S.

“The Company is diligently working to mitigate any Cambodia NHP supply impact with ongoing efforts to procure NHPs under different supply arrangements and from other global sources,” Charles River (CRL) said in a regulatory filing.

However, despite the disclosure, CRL shares declined even after Wells Fargo analyst Timothy Daley argued that the company would likely benefit from the incident, given its pricing power and market leadership.

“….we see this as a potential benefit for pre-clinical CROs not exposed with secure sources of supply due to share gains and incremental pricing power, most notably Charles River (CRL),” Daley wrote, adding that the supplier in question represented 45% of all NHP imports to the U.S. in 2020.

Amid a significant supply-demand mismatch, the event is likely to impact pre-clinical CROs/Biopharma sponsors sourcing from this supplier, i.e., Inotiv (NOTV), or companies that use those products in drug studies, i.e., Laboratory Corporation (LH) and biopharma, Daley added.

Read: Seeking Alpha contributor Hummingbird Insights LP reiterated the Buy rating on Laboratory Corporation (LH) early this month even after the COVID-19 test maker missed revenue forecasts with its Q3 2022 financials.