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Shares of Charles River Laboratories International Inc. tumbled Wednesday, after the provider of contract research services for pharmaceutical and biotechnology companies disclosed receiving a subpoena from the Justice Department related to an investigation into illegal importation of nonhuman primates.
The company also reported fourth-quarter results that topped expectations, but provided a full-year profit outlook that was below Wall Street forecasts.
The stock
CRL,
took a 13.7% dive in midday trading toward a 2 1/2-month low. That put the stock on track to suffer the biggest one-day selloff since it sank 18.8% on March 16, 2020.
Charles River said it received the subpoena on Feb. 17, when it was informed by the Justice Department that the investigation relates specifically to several shipments of nonhuman primates it received from its Cambodia supplier.
“Once the Department of Justice concludes its investigation, we believe it will find that any concerns with respect to Charles River are without merit,” said Chief Executive Jim Foster in a conference call with analysts, according to an AlphaSense transcript.
The company said it intends to “fully cooperate” with the investigators, and will stop receiving nonhuman primates from Cambodia, for an undetermined time.
“Based on ongoing investigations and a heightened focus on the Cambodia NHP supply chain, in recent months, we have voluntarily suspended planned future shipments of Cambodian NHPs until such time that we and the U.S. Fish and Wildlife Service can develop and implement new procedures to reinforce confidence if the NHPs we import from Cambodia are purpose-bred,” Foster said.
In November, the Justice Department said two Cambodian government officials and six co-conspirators were charged with multiple felonies for their part in an international primate smuggling ring. The charges allege that two members of the smuggling ring conspired to illegally acquire wild-caught macaques and launder them through a number of related companies based in Cambodia, the falsely labeled them as “captive bred” so they could be exported to the U.S.
Nonhuman primates have been in high demand in recent years, as all of the COVID-19 vaccines developed in the U.S. and Europe utilized nonhuman primates, Foster said, and 60% of the nonhuman primates supplied to the U.S. were sourced from Cambodia.
He said there is currently no global source to replace the supply of nonhuman primates from Cambodia. So the current supply situation will result in study delays in the company’s safety assessment business, and have a negative impact on 2023 revenue and earnings, Foster said.
With that in mind, the company said it expects 2023 adjusted earnings per share, which excludes nonrecurring items, of $9.70 to $10.90, which is below the average analyst EPS estimate compiled by FactSet of $11.37.
The company also reported before the opening bell net income for the quarter to Dec. 31 that rose to $187.4 million, or $3.65 a share, from $137.6 million, or $2.67 a share, in the same period a year ago. On adjusted basis, earnings per share of $2.98 beat the FactSet consensus of $2.75.
Revenue grew 21.5% to a record $1.10 billion, above the FactSet consensus of $1.04 billion.
Among the company’s business segments, discovery and safety assessment revenue rose 29.5% to $691.7 million, well above expectations of $639.0 million; manufacturing revenue increased 3.3% to $212.1 million, just shy of expectations of $212.1 million; and research model and services revenue grew 18.4% to $196.1 million, to beat analyst forecasts of $186.7 million.
“We exceeded our expectations due primarily to another robust performance in the DSA segment, and quarterly revenue exceeded $1 billion for the first time,” CEO Foster said.
The stock, which was headed for the lowest close since Dec. 13, 2022, has dropped 13.1% over the past three months, while the S&P 500 index
SPX,
has edged down 0.1%.
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