Filed by
Charles River Laboratories International, Inc.
pursuant
to Rule 14a-12
of the
Securities Exchange Act of 1934
Subject
Company: Charles River Laboratories International, Inc.
(Commission
File No.: 001-15943)
VIDEO
TRANSCRIPT
Hi there,
I'm delighted to be here today to announce and share with you the fact that we
have signed definitive agreements to acquire WuXi AppTec, the world's largest
medicinal chemistry company located in China. This expands our
portfolio dramatically. This is a deal that is scheduled to close in
the 4th
quarter of this year, but we have signed the agreements and will be working
through the legalities of getting that done.
We've
been thinking about this for a long time; how we strengthen our portfolio, how
we give more balance to it, and frankly how we add a third leg. How
we start with our clients earlier than we do now and chemistry is really the
first step. Creating the molecule that then gets tested early in
animals, and then will be tested further in preclinical, and ultimately in the
clinic.
WuXi was
incorporated in 2000. As I said, it's in China, primarily in Shanghai
and two other neighboring cities. They already have 4,000 thousand
employees even though the company is relatively young. They've had
enormous growth because their work is so good, and their clients who are really
the same big pharma and big biotech clients that we have, depend on them heavily
to create these molecules for them.
So, we've
also been trying to respond to our clients. So what's happening to
our clients is that they are merging, getting larger and really demanding and
expecting that their suppliers, like us, have bigger portfolios, have greater
scientific depth and can support them in ways that we can't right
now. So, putting these two companies together; WuXi AppTec, the
world's leader in chemistry, and Charles River Laboratories, the world's leader
in vivo biology company and the world's leader in research models & services
and
preclinical,
puts us in a unique place and elevates our relationship with our
clients. So now, in some cases, it will double or triple the size of
the amount of work that we do with our clients and makes us more important to
them. So we will strategically be more important because we have this
expanded and strengthened portfolio.
So we're
going to add a third segment. As you know we both operate and report
to Wall Street two segments now; research models & services and preclinical
services. We're going to add a third one, simply called Discovery
Services. This third leg will include WuXi AppTec's chemistry
services. Also they have chemistry based manufacturing where they
manufacture the drugs that will go into clinical trials, and hopefully someday
drugs sold for end-use purposes. Also, our DIS, our Discovery &
Imaging Services business, will be included in the discovery
segment.
So, we're
moving upstream. We're moving earlier in the process when the drug is
first created, the molecule is created, and WuXi AppTec is moving downstream by
linking themselves with us, and together we have a much broader, much more
interesting, much more compelling, much more powerful portfolio. This
for sure will strengthen relationships with current clients. As I
said before, in some cases we're stronger with one client, and in some cases
WuXi AppTec is, we'll leverage on each other's strength. In some
cases, neither of us has had great market share with a client, and now being
able to go to a new client and saying we can help you from early chemistry all
the way to first in man is very very powerful. We're also giving
clients options - you want to do your work in Europe; you want to do your work
in the U.S.; you want to do your work in China; you want to do your work in all
of the above; whatever.
As we do
with our smaller acquisitions, we are very interested in corporate
cultures. We've spent a lot of time, both of us, they of our culture
and we of theirs, spent a lot of time trying to understand their culture, trying
to get to know it better. We feel that the corporate cultures are
very similar. We care about our people, and the business is only and
all about the people, particularly on the services side of our
business. We care about our people, and that they have great jobs,
and they have opportunities for advancement,
and that
they work for a company that's interesting and challenging. Where
both companies are about accelerating the drug development process, both
companies are about exceeding our client's expectations, both companies are
about extraordinary scientific depth and excellence, and so we have these
wonderful shared goals and as we've spent time with them and they with
us. I actually feel like I've been working with these people for
years already, and I hope and believe they feel the same way and I think as you
all get to understand the new businesses better and meet and work with some of
the people, you'll feel the same way that I do.
So, if
you look at China, it is right now obviously a very powerful nation with great
business opportunities. In the life sciences and the
pharmaceutical/biotech arena, it's quite nascent, it's quite new, but we're
seeing almost all of our large pharma clients locate there. They
locate there, in part, because of the cost benefits, but they locate their
primarily because China has extraordinarily well-educated people, obviously a
lot of them, with an exceptional work ethic, and the drug companies want to do
the discovery and development work in China for drugs that will be sold in
China, and also to develop drugs in China for the rest of the
world. So, we really need to be there. We really need to
allow our clients to sort of pick and choose where they want to
go. So, some portion of the work that either we do now, or will do,
or could do, will go to China. So we have a couple of choices; we can
watch that happen and have it go to WuXi AppTec or one of the other competitors
there and not have any role in it; or, as we are doing now, put our two
companies together and have that work and satisfy the client's
needs. So some clients have already told us that they're going to
China (for whatever reason, great), some will migrate over time, some I think
will never go, and some we'll wait and see. The reality is that, I
think that work that goes to China will go there slowly, in a very sort of
measured way. Even if all the customers wanted to go to China today,
which they don't, but if they did, there's less than 500K square feet
collectively for 5 competitors of GLP quality space in China, and there's over
8M in the rest of the world, so it's going to take an awfully long time for
China to have any substantial capacity, but, by putting our companies together,
we have the most capacity in China, and we're pretty excited about
this.
So, what
this means for all of us, all of you, is a great opportunity to grow our company
faster, better, more profitably. Provide opportunities for the
clients that we can't right now. For both Charles River, what we used
to be on a stand-alone basis and what WuXi AppTec was on a stand-alone basis,
two really powerful companies now even more powerful on a stand-alone
basis. We have very limited duplication of efforts between these two
companies. There's very little of what we do that's identical or
duplicative. We have a global integration team which will be
populated by people from both Charles River and WuXi AppTec that will sort
through this duplication over the next few months, and when we close this deal,
which will be in the 4th
quarter of this year, we'll let you know what modest changes we'll be making to
our portfolio.
While I
have you, on this video, we also just announced our 1st
quarter results. I'm really happy to say after a really tough '09,
what a difference a year makes. The numbers came out exactly as we
had predicted and projected; we did almost $300M. We had a 1.4%
decline in Sales. While that, in the abstract, doesn't sound all that
positive, compared to last year, we had almost a 20% decline in Sales and each
quarter we had major declines, we feel and see things
stabilizing. RMS was up 6.6%; 2% of that was price. Some
of that was our new acquisition, some of that was real growth. For
preclinical the demand has stabilized, inquiries are up, pricing has stabilized,
and you can feel the clients getting back to work. We did have
decrease of over 10%, but as you remember from last year, some of the quarters
we had a decrease of 20%, so the decrease is moderating. We still
believe that the preclinical business will begin to invigorate and improve in
the 2nd
quarter (this quarter), of this year. We're reasonably well-booked
already for the 2nd
quarter for PCS, and we're very happy about that. So, we remain very
optimistic about 2010 and we believe we'll have a slow, steady build over 2009
as clients get back to work and work on the drugs that are in the development
pipeline that have pretty much been languishing there.
So, these
are really exciting times for all of us and for the company. We are
transforming the industry and we are transforming Charles River. We
are creating the first fully-
integrated,
global, early stage CRO. I know that's a mouth full, but that's what
we're doing and we're so excited about it, it's so powerful and it's so changed
the game for our clients. It does really sort of four
things: It provides better service to our clients; we're putting all
these great scientists from both companies together so it enhances our
management team; it drives our top line higher (so actually enhancing our
profitability); and we will be accelerating a stronger presence in China and
that's really exciting.
We
believe that this deal will close in the 4th
quarter of this year, because it takes a while to finish the
process. Until that happens, while we are going to tell the world,
and our clients, and Wall Street, and all of you about the transaction; why it's
important and why it makes us a better company, it has to be business as
usual. We can't really interact with the WuXi AppTec people, nor they
with us. We can't be interacting with their clients, except to the
extent that they are our clients as well. We can't do anything on a
combined basis. As I said, we will have global integration team that
will work very quickly on sorting out the duplication, but also on the
opportunities for enhanced revenue growth, and how we're going to do that
together. It's really important that you stay focused on what you do
everyday, and I want you to know enough about the deal so that you can answer
questions about it, whether it's with new employees or clients, but we can't
take it much further than that.
So, this
is a defining moment in the company's history. This is taking the
company to the next level. This is of the magnitude of our leverage
buy-out in 1999 when we acquired Charles River from Bausch & Lomb; and of
the similar magnitude of when we acquired Inveresk in 2004. The
acquisition of WuXi AppTec is at least of that magnitude. It clearly
redefines the company and takes us to the next level, and I hope that you share
my enthusiasm already, and if not, as you get to understand this transaction
better, I know that you'll share my enthusiasm. So strap yourselves
in, it's going to be an exhilarating ride as we take Charles River to the next
level.
ADDITIONAL
INFORMATION AND WHERE TO FIND IT:
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 will file a preliminary proxy statement and a
definitive proxy statement with the SEC. The information contained in
the preliminary filing will not be 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 and definitive proxy statement will be
available free of charge at the SEC’s website, www.sec.gov or shareholders may
access copies of the documentation 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 will be set forth in
the preliminary proxy statement when it is 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.
FORWARD
LOOKING STATEMENTS:
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 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; 3) the acquisition may involve unexpected
costs; 4) the combined company may be unable to achieve cost synergies; 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 any statements regarding Charles River’s projected 2010 sales and
earnings; the future demand for drug discovery and development products and
services (particularly in light of the challenging economic environment),
including the outsourcing of these services and present spending trends by our
customers; and Charles River’s future performance as delineated in our
forward-looking guidance, and particularly our expectations with respect to
sales and foreign exchange impact constitute forward-looking statements. Such
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 businesses we acquire; negative trends in
research and development spending, negative trends 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, as well as other
filings we make with the Securities and Exchange Commission.
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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