Charles River Laboratories International, Inc. (CRL) Earnings Call Transcript & Summary

Hi, everybody. Thanks for joining us today. I'm Elizabeth Anderson. I'm the health care technology and distribution analyst here at Evercore. And I'm very pleased to be joined by Jim Foster, who is the CEO of Charles River Labs. Just before we get started, I just wanted to point out that there is a separate question panel. So if you have a question that you want me to weave into my questions, feel free to put it there, and I will do that. On that note, Jim, please take it away.

Thanks, Elizabeth. Just a quick sort of summary of where we're at. We reported a really strong third quarter, up almost 8% with our operating margin almost to 23%, which was a really strong quarter. EPS up almost 40%. We did increase our revenue guidance to 5% to 6%, which we're pleased with. I do want to clarify the fact that, while we're pleased to have COVID-related work, it's only about $50 million for the year. So we're delighted with that. We have a lot of questions about what's the size and scale of the work. A research market grew about 2%, which we were pleased with actually and nice growth in the service areas and nice growth again in our 2 cell therapy businesses. DSA segment grew at about 8.5%. So the demand there where we reported in the third quarter was quite strong, and the market conditions continue to feel really, really good. Manufacturing segment was up over 11% for the quarter. So the outsourcing environment feels strong. The funding environment, obviously, is quite strong for biotech. In particular, we're back. I'm sure we'll talk about this. We're back aggressively looking for acquisitions to fill out our portfolio. Feel that we've -- that the outsourced trend for, particularly, our DSA services has been accelerated somewhat by COVID. So more work being outsourced because clients couldn't get the work done elsewhere. We think some -- not all, but some of that work will be retained. So we're really pleased with that with the sort of expanded client footprint. A lot of that work is coming from big clients who liked to do the work internally previously. So really pleased with the acknowledgment by the client base of the power and breadth of the portfolio, particularly by those who used less often than we would have liked them to. So maybe I'll stop there.

Perfect. No, that's a great introduction. And obviously, a lot to talk about in just that. So I guess maybe as people are thinking about -- I think you hopefully pointed out the COVID impact from the revenue perspective. Can you talk about the -- how you're seeing RFP volumes sort of developed in overall end market demand? I know there's been some concerns about the recent uptick in COVID and whatnot. But how are you seeing that play out?

Yes, demand has -- I would say, demand has been and continues to be as good as we've ever seen it, just across our whole portfolio. The knee-jerk reaction or overreaction to COVID when it first broke by a lot of academic medical centers, a lot of small biotech companies and even a lot of large pharma companies in terms of shutting down capacity, which, of course, slowed down the demand for our work, particularly in the animal business, no one's going to buy. I used to do these experiments if they're at home and not working. That's all sort of moderated out right now. And so yes, there's definitely an uptick in the virus, unfortunately. I think people are pretty measured about it. So we don't anticipate clients will shut again. We don't anticipate -- we never shut. We don't anticipate that we would shut. Since the funding has been great, we don't anticipate there's going to be any slowdown in demand from an affordability point of view. There's probably some catch-up that they're trying to do, although it's impossible to make up for time lost. I do think people understand how to work in a COVID environment better than they used to. So just the PPE and the social distancing in a laboratory setting, you're probably safer there than generally out and about anyway. And of course, our employees have the same situation. So while it might appear from the outside that we would be having a different demand curve right now as the infection rates rise, it's not the case.

Okay. No, that makes sense. And obviously, the biotech funding market, as you pointed out, and we get on our new speed, seems to be almost one a week or something like that. Are you seeing any particular demand from certain areas that was sort of different than before? Or has that sort of been a continuation of prior trends that you've seen?

No, I wouldn't say that there's no specific greater or less emphasis from any particular segment of the market or client base. The preponderance of our client base and our revenue base is biotech these days, has been for several years now. That will continue to be more pronounced over time because there's a couple of hundred new biotech companies every year, created by the venture capital industry. None of those companies have any internal capabilities to do any of the work that we do, nor will they ever want to. So they're all net outsources. So the client base continues to expand. The amount of work that used to be done internally by big pharma and some big biotech companies continues to come outside. The pie continues to grow. And interestingly, get asked a lot of questions about this. We don't see any surges in spending when there's a particularly strong, I don't know, IPO quarter or secondary quarter from biotech or a slow quarter. It doesn't seem to change. They're well financed. We figured they have 3 to 4 years of cash. They spend their money thoughtfully, but pretty aggressively. They're not price sensitive, some of it. As a group, I would say, they're less price-sensitive than some of the big pharma companies. And so we see sustained, thoughtful spending by the biotech industry who tends to prosecute their portfolios pretty as aggressively as they can. Of course, since they never have to hire the people to do the work or build a facility to do the work. They can be as aggressive as the money permits and aggressive as our ability and our competitor's ability to do the work, which is pretty good right now.

Yes. No, that makes sense. And you feel good from a capacity perspective from -- on that front?

Capacity is good. We're very careful. We have been for years about not getting out over our skis to have too much capacity because it kills your margins and it hurts your pricing paradigm. Conversely, we never want to turn around a way of work because we don't have the space, and you can't build it overnight. So it sort of could be a couple of years before space is ready. So we build incremental capacity at multiple facilities every year, including 2020. We will again in 2021. Some people say, "Well, why don't you do that on one site, and you have all that space at MPI, the big facility you have in Michigan. Why don't you just use that?" And the answer to that is that clients want proximity and some clients in Europe only want to do their work in Europe for all the obvious reasons. And so we need to do it in multiple sites simultaneously, not necessarily every site, but multiple sites. And we figured out a cadence to be able to do that to be able to know when to plan for and dig the next hole for the next building. Let's say, we're going to need in 2022, we know when to build that. So so far, so good. And it's not just safety, it's acre. We're doing in the Research Model business in China. We've done our Biologics business for the last few years. We've done a little bit in our Discovery business. So capacity is a necessity. I would just say, just to round up the answer that staffing is more important. And so for me, capacity is just money and planning. Staff is to -- also to some extent, but getting the best possible people in the world, many of whom come from big pharma and biotech or academia and getting them properly trained and installed in whatever facility there is, is even more important to get ahead of the curve. But by the same token, you can have a bunch of expensive people sitting around. So how we manage staffing and capacity. Maybe that's true, this is true in every business. But we can't add space quickly. We can't necessarily in the animal business, just to add a third shift to make more animals. Obviously, that's not possible or shut things down when demand is less amicable. So I think capacity is in a good place right now.

Yes. I believe that's one of the -- obviously, you have many drivers to your algorithm, but I feel like that's one of the ones that's sort of hard to discern from externally. And so maybe not talked about as much as some of the others. So thank you for that. I think in your internal remarks, you also talked about some of the increased outsourcing in Discovery. And I think on the 3Q call, you talked about how that was sort of maybe a reaction to COVID. How do you see the sustainability of that playing out? And is that different in pharma versus some biotech? And sort of what are the indicators that maybe somebody is maybe looking to make that shift after trying it on a one-off basis or not?

Discoveries are really interesting one. We've been saying for some time several things. Number one, we always knew that the strategic move into Discovery, in other words, earlier into the development -- creation and development of a drug was a smart strategic move to develop a relationship with the clients as early as possible. A minute that drug is developed or the minute a target is identified or in some cases, we help them find the target. We want to engage with them. So we felt very strongly that moving upstream was a smart move. We also knew that shareholders would be like what are you doing and why would anyone outsource to you? And why is it taking so long? And I have to tell you that I have a lot of clients. I meet with a lot of clients say, I don't understand what you're doing. And we do discovery, why do you think we would ever let you do that work? And then I would explain to them what we meant by discovery, which tends to be a little bit -- even though we do some very, very early step, it tends to be a little bit further down. So they discover the drug with them, all the ancillary testing around it. They ought and do themselves because we can do it faster and cheaper with better science, and that's all we do, and they only do a little bit of it. So as we begin to explain that, clients go like, "Oh, that's what you mean by discovery." We also said that we were going to have more scale and more geographic diversity to ever get the clients' attention. So for reasons that are a little bit too subtle to literally explain that businesses just kind of come into its own. It's now of sufficient scale and depth and scientific excellence that people have gone well. I didn't realize you could do that. And by the way, it's very interestingly, not just little companies, it's really big pharma. It's really big biotech and it's really small biotechs. All -- if you saw the client list, you would be, I think, impressed or maybe surprised, it's the whole range and it's accelerating. And so if I think back when we started in Safety, which was -- it's all been acquisitions, just like Discovery, 20 years ago. It was only 20% outsourced. And it's now 60% outsourced. Discovery is probably also 20% to 25% outsourced, and I think it will get to at least 50% over the next few years. So it's scale, it's knowledge, it's just getting the word out. And then what we said about COVID was even the reluctant clients who did the work inside, suddenly with COVID were closed. And they were like, "My god, we had to stop the development of this drug." So they pivoted really quickly, and they hit back in the recesses of their line somewhere. I know what Charles River saying something about doing whatever in the oncology space. And so we've clearly gotten some incremental work because of COVID. I don't like to say that doesn't feel good due to COVID, but that's the case. It's kind of inflection -- it's accelerating inflection point for Discovery and Safety and a few other businesses. So clearly, clients are happy because they're telling us they're happy. Clearly, clients are coming back because they're already coming back. I don't think we'll keep all the work. But I think we will have accelerated the outsourcing trend by some substantial period of time. And if you believe that it will follow the same trajectory of Safety, which we do, and it's being sped up anyway that COVID has speeded up even faster. So -- and then the last thing I would say about Discovery, which I'm sure you're going to get to with another question is that, I would say the preponderance of our M&A activity will be in the Discovery space. So while it's meaningfully -- while it is a meaningful scale right now, it's way smaller than Safety, for instance. And so as the scale improves and increases, more clients will be interested and more clients will be comforted and more clients will, particularly the big ones, will be the path to our door. So I feel really good about it. It was frustrating to some people. It wasn't frustrating to us because we knew it was the right strategic move. And I think the third quarter, in particular, really has begun to validate that.

Yes. No, that's good to hear. And I feel like that's true because people do get, I think, caught up in the word discovery. So it's almost like it's Discovery support. It's not -- you're not competing, you're enabling sort of improved efficiencies on something that is arguably not biopharma core.

That's well put. So I think instinctively, they can be put off by us saying we do discovery or almost competitive about it. No, no, that's what we do, we're the drug company. You are the CRO. You don't discover things. So it is a lot of nomenclature.

Yes. No, for sure. But it is funny how that does have an impact. I guess to your other point, are there different sort of Discovery services that you would do for bio, like smaller biotechs versus pharma? Or does it tend to sort of just be like a client-specific type of deal?

Yes. Yes. It doesn't break down that way. I think that -- I think with pharma, it's more, in some cases, outsourcing things that they've historically done, but now they understand they don't have. And biotech has no internal capability. So we're more prone to get to work. But I would say the nature of the work doesn't materially differ except to the extent that maybe some biotech company may be only large molecule. And so the work is principally large molecule or only large molecule. That would be the only distinction between the 2 types of clients.

Got it. And then to your last point, I mean, on the M&A front, like is it sort of a scientific capabilities type of situation? Is it just mere like capacity or geographic expansion? Like how do you think about the areas that are most interesting to you there?

Yes. There's just a host of things that we're going to do in the large molecule space, in the antibody space or cell and gene therapy focused on the product and services. Probably more things on oncology and CNS, where we already have pretty big footprints. Maybe some more things in the in vitro, nonanimal side, silico stuff. So we're doing a lot of technology deals, which both you and shareholder base who just listen for more dialogue from us about that because I think it's a very important source of expanding the portfolio with cutting-edge technologies where we've found a company that some of them are pre revenue, where we made a small investment to have a working relationship with them. That may culminate in an acquisition and be able to enhance the portfolio with some technology that nobody else has, pretty cutting-edge stuff. So I'd say that M&A will be -- not entirely, but largely discovery focused. So we've done 9 of those technology deals, and we have at least that number under LOI and probably another set in early discussions. And so we have a pretty big universe of deals to incorporate into the portfolio. I'm particularly excited about those because the risk that you make a mistake is possible because the technology could be supplanted by something else, but the risk that you make a mistake from a due diligence point of view is very, very low because you work with the company for a year or 2 and you know about staff, you know the responsiveness, you know whether the technology works, you know what the clients say about it as opposed to doing 2 weeks from a month of deep due diligence. I just like this better.

Yes. No, it makes sense. And we have one question here from the audience, too. Is that -- do you have any -- in terms of your thoughts on sort of size, are you still looking -- is it all sort of like bolt-ons sort of in small technology deals like you were just saying? Or do you have any appetite for potentially larger transactions?

So the appetite and availability of targets don't always jive. So what I think for a while is we would love to do an MPI-sized deal every year. So that was $800 million. So let's say, $1 billion purchase price to buy a couple of hundred million or $0.25 billion worth of revenue feels like the right zip code. It's not cheap. I'm not trivializing the amount as the check. But given our market cap, given how low our leverage is, given how much cash we throw off, given our borrowing capability, given how cheap debt is, given the fact that we've done some bonds, affordability is not our issue. So the balance sheet is strong. So I do $1 billion deal every year because they just -- they make a difference. They move the needle, they invigorate the portfolio. You get more clients, you get more geography, you get a lot of stuff. And the reality is the deals come in all shapes and sizes. And I would say, most of them are on the small side. There are a few things we're looking at right now that are in that sort of $500 million, $600 million, $700 million, $800 million range. It doesn't mean that we get any of those done. There's nothing giant that we're looking at right now, not that we necessarily are looking for in time. There's just no really big transformational deals that there will be a smart move for us. We want to stay in the areas in which we're currently in and expand and enhance those and not move off the reservation. So we have a pretty active deal flow right now. We have several conversations going on. They're almost all PE sellers. There will probably be less strategic buyers at the table and probably more financial buyers at the table, which some aspects of that I like and some aspects we don't like. I don't think we'll steal anything. I think prices will be full, but fair. We don't chase anything. So we have a valuation -- very rigorous valuation modeling metric. We don't like to push our models. And we certainly don't overpay. We don't know when we overpaid for anything. I think if you do that a couple of 3 times, you end up with suddenly a bunch of deals that are dragging down your EPS and your operating margin. And it's just looking about self. We're very disciplined to walk. We like these deals, but we try not to follow up with them because we know that what we even laid out, we may have deal to make it happen. Having said that, there's very few deals that we wanted that we missed. So we have been able to get an insight track on most of the deals that we ultimately buy by developing a relationship with the seller, using the PE firm and the management a couple of 3 years before the Thanksgiving for sale. And we usually would have -- we say, we know it's not to say when it is call us first, and we check with them every 3 to 6 months. And so we never wake up and read about a company we wanted to buy that was sold with us knowing ever. We've missed a couple because we haven't passed on it or someone out bid us, but usually, we're able to get it. So I will be surprised if we don't do some M&A that's meaningful in 2021. But we do assurances than anything we're looking at now actually gets done.

Perfect. That makes sense. And it seems very much in line with some of your prior comments, but that was helpful color. Maybe to switch gears a little bit. How do you see the current maybe political and COVID situation impacting your ramp-up plans for RMS in China?

Very little in academic. So China is obviously a complicated place to do business. I don't think the fact that we're going to have a different administration is going to be any different, frankly. I think there's a competitiveness and attention between the 2 countries. I think China has pivoted pretty quickly to you want to work in China, you're going to do work in China, for China. So don't be exporting stuff and don't be providing services elsewhere and that could be a tougher environment or not, it's tough to say. We'd like to buy similar things in China for 2 reasons. I don't think that happens any time soon. We are a little bit concerned about the political environment and the valuations are ridiculous. So they're just absurd. So we're just not going to do it like going to buy something 20x revenue because that's what the Chinese public markets allow. So we're just -- we're not doing it. Now the Research Model business is a different kettle of fish for different kettle of mice. We do -- what we do, we do better than any Chinese companies and the Chinese government knows that. If they want to be respected internationally and they actually want to do -- continue to do good work and they want to peer reviewed, they're going to have to use really pristine research models, which we're the only one to provide that. We've been educating that country for now 6 or 7 years. And so it's a pretty big market. We have about a 35% share. I think we can get that to 50% or 60% over the next few years. We have a fair number of competitors, almost all of whom are Chinese government entities or backed by the Chinese government. They build beautiful facilities. They assume there's a really trivial business where you get a male and female animal and put them in a cage and turn down the lights and they're going to a baby animals, and they don't have no sense of the complexity of diseases and inventory management and shipment and all of the stuff that happens. They run into trouble almost immediately. It's really pathetic. So I do think that to the extent to which the Chinese government actually pays any attention to us at all or maybe I'm giving us too much credit. If they do, they're smart enough to know that we are doing -- providing a valuable resource to China. And then the last thing I would say, which is really quite interesting. We purposely only bought 75% of this company. Now we've ended up buying more in 2 additional tranches. I think we're up to 92%. But the original founders are still there. They don't run it, but they're still active. And even though we're obviously a U.S. public company doing business in China, it was a Chinese company, and I do think that government sort of looks upon it as Chinese. So they're quite supportive of us. And so our strategy there is not all that sophisticated. We're going to continue to build sophisticated facilities in China in different locals because it's a giant country with small cities that have 10 million people. You have small cities that are bigger than New York City where there's a lot of research being done. Unless we're closed, we won't get the work. So if we don't build new facilities, we run the risk that some new government entity pops up or maybe they've already popped up. And so if we're not there, they get to work. So we've really been pleased with how that business is growing, both on the Research Model business, both on the product and service side. It's a very high-growth business with good margins. We're continuing to build new facilities as we speak. I would say that I don't know whether we get government support, where we certainly don't get government interference. I would hope that if anybody would ask them and they knew about us, that they would say that we're critical to [indiscernible] in that country. But we do a little bit of our Microbial business there as well. We'd like to do Discovery and Safety. I think at some point in time, we're going to want to do Discovery and Safety. Pains me to say this because I think it's going to be painful to do it. I think we'll have to greenfield it. It just takes forever, really expensive, it's hard to manage. We've done it before. You get a good result. It's just the world moves too quickly, the market moves too quickly. So M&A has worked better for us. But as I said earlier, and until there's a valuation shift even by a private company, they have public company valuations in their mind, and they expect to be paid that way or they will take it public. So you should expect to see us continue to focus principally our Research Models for the next few years in China.

Okay. That makes sense. And maybe switching to some of the Manufacturing services business. Are there any updates just in terms of Microbial for 4Q? I know we've had some -- you'd had some delayed installations. Does that sort of process continuing to improve? Or how would you characterize that?

Yes. It's both continuing to improve and continuing to not improve. So we have no control over it. The good news is the demand for these very elegant products that we have that speed up the time of testing for so many pharma and chemical companies. And technology is great and well recognized. We have a great installed base. We sell a lot of small pieces of equipment, and there's a lot of razor blades that go with those. But a lot of clients have been closed or have restrictions as we do outsize entering. So even if you're at the FDA, you're not coming to service it. You're not coming to out of the Charles River site right now. So they're not letting us in. A lot of people and right now, as you know, the virus is red hot in the U.S., Europe is worse, worst as ever been. So I'd say that's not ameliorating quickly. Having said that, we are getting better at some virtual installs. They're tough to do because this is really complicated stuff and the software validation that goes on. And that some clients really want technology and they're willing to invest their time and were getting better triggering at virtual installs. So margins are greater in that business that will continue to grow. We'll continue to have a headwind to some portion in '21 because we have no control over those facilities being closed. Since the virus is increasing and not decreasing, I don't think they're going to open more quickly than we had anticipated. So we will guide you accordingly for '21. But I would -- the last thing I'd say, I'd say that just to go back to the FDA thing, the same way the FDA has been able to virtually a lot of companies like us. I do think our virtual install capability will continue to improve. Some of that might persist post COVID. It's just a better methodology to do things more quickly without always deploying people to go there because it's obviously expensive though. Right now, a lot of the doors are still closed.

Okay. That makes sense. And then in the Biologics business, I think you spoke to specifically about China before. But how are you thinking about like capacity, specifically in this business and sort of your scale-up plans here?

So if I got your question. No, we have no intentions anytime soon to start a Biologics business in China. There may be some other ways to do Biologics there, but it's not clear. But the Biologics business has really high-growth everywhere else. And that's driven, obviously, by the plethora of large molecules. There's definitely a COVID pop particularly in that business. Our COVID revenue is, as I said in the opening remarks, relatively modest. We're happy to have the $50 million of sales, but it's not really changing the slope of the company. It's more beneficial to Biologics than anything else because of how many vaccines and drugs in the clinic have been manufactured. And also has a lot of cell and gene therapy activity in Biologics that will persist, in a lot of antibody work that will persist. So the Biologics business, which we've been actually in for a long time, it's been a long time coming. It's really come into its own and is performing particularly well right now. Margins have improved nicely. We built a bunch of space that's now being utilized. I do think we stunted our growth a little bit for the past couple of years. And so we're pretty optimistic about that business right now.

Okay. That makes sense. I mean, I think one of the nice stories over 2020 with Charles River versus, obviously, besides your whole handling of the COVID pandemic was we're sitting here in sort of 3Q, 4Q last year, people like, "Oh, can Charles River ever expand margins? Is that really going to work? Are there long-term goals?" Sort of something that can reach in like, obviously, you've clearly answered that question. So how as we're moving forward sort of now on the margin front, like is there anything to think about or call out for investors just on the COVID pieces of that? And then going forward, where do you see ex COVID reramp like the largest continual opportunities on the margin front?

Yes. We're really pleased to be able to have told our shareholder base that we're going to get really close to our 20% operating margin for fiscal '20 a year earlier than we had originally guided to. So we're thrilled with that. We're always about trying to improve operating margin even as we periodically have some headwinds from some M&A and other activities. So I would say that going forward, without getting overly specific that while there are definitely some areas of continued investment in the business to provide greater connectivity with clients, there's probably some modest headwinds from COVID lower expenses in '20 that -- than in '21, although I think that travel, in particular, continue to be low that we -- and we're certainly not ready to give new guidance on our longer-term targets. But we definitely have opportunities in several of our segments. So you'll see the benefit of the cell therapy businesses and RMS provide some opportunities for both top line and margin expansion there. You'll definitely see some opportunities in DSA, which is our biggest businesses as Discovery gets increasingly more profitable, which it is. And 2 of the big -- 2 of the 3 big acquisitions we made in Safety get more profitable, which they are, as we continue to focus on efficiency, so things like digitizing the company and provide greater connectivity, greater speed and less manual activity. We'll see more margin traffic through, particularly in the Safety Assessment business. Microbial is very, very profitable. We will never break it out. But maybe that will be more profitable. I would say Biologics is the other one, as I just alluded to a moment ago, which had a great third quarter. It's got more scale now, more volume, greater flow-through. I think that business also can. So pretty much across all 3 segments with the greatest dollar volume and greatest difference to be made in DSA.

Okay. That makes sense. Another question just come in. Somebody is asking about the HemaCare and just sort of how that volume, obviously, that you had -- that was a COVID hit business. How do you see that trending as we move through the end of the year?

Trending just by improving over time, we'll probably exit the year with kind of 20% growth rate and not a 30%. So it definitely adversely impacted. It's close to being back to full strength. The turn around is socially distance. So it's not quite -- maybe as efficient as it was, but we run the shifts longer and clients are now open. So that business is growing nicely. We're integrating the 2 businesses really well. So we're highly confident that those businesses, which are relatively small, but kind of $50 million-ish will grow at a 30% clip next year. You do that for a few years, that $50 million business gets pretty big, pretty fast. It also provides the basis. Hopefully, to add some additional, specifically, cell therapy capabilities and eventually maybe some gene therapy, both products and services to the mix. So that there's so much work being done by so many of our clients in cell and gene therapy. So many of the newly minted companies by venture capitalists are only cell or gene therapy that we have to have a big footprint of service capabilities. So we're quite interested in that space and have a fair amount of demand from our client space for us to do more. So we're always looking there.

And that makes sense. And then I guess in terms of some of the ability on the cross-selling that you talked about, maybe just between Discovery and Safety, but then also maybe with other segments of your business, too. Like what do you think are the biggest drivers just sort of a customer in one area expanding out into using Charles River for more services?

Yes. It doesn't take much. Several things. One is speed is the watchword of the industry, that's what everyone is interested in the speed to market. You have to have quality to go in line with it. So every time they do some work with us and have to go externally to find somebody else to do the next phase, they're losing time. They hate that. The biggest drug companies in the world hate it and start-up biotech companies hate it. So by the very nature of their work, that's how they want to work with us. So that's great, number one. Number two, every biotech company has created -- has no internal capability. So they want to -- they will -- they are and they will outsource everything. And increasingly, pharma will outsource more of the things that we do, maybe everything that we do and certainly big biotech is. So there's not much of a sales pitch here. The question is, how robust is our portfolio? And that's the reason we don't do M&A just to have more zeros at the end of our revenue or profit line. We do it to be a better service provider for our clients. And so every -- all the M&A that we're looking at and all the technology deals dramatically enhance from a scientific and strategic point of view of the portfolio and allow us to preempt the client from going elsewhere or preempt the client from being frustrated. And we also get a lot of recommendations from our venture partners because we're LPs in a lot of these firms. We meet with them, we say, "We are some of your portfolio companies working with some small technology providers who you're worried about their sustainability." So we get a lot of acquisition recommendations from them about companies we could buy the technologies we need to look for. So that's what we're up to. So there's nothing standing in the way of them doing this, except wanting to. Even the biggest drug companies usually come to some strategic inflection point where they've done a big merger, they're relooking at the cost structure, they have a change in leadership, a new CEO, CFO or both. It says, why don't we do this internally? I think people to do that externally. So there's no question that we'll continue, and our ability to have a broader portfolio kind of accelerates that process.

Okay. Nice. And I think we have 2 minutes left. So on a -- as a parting question, what are you most excited about, like in terms of Charles River's prospects?

Yes. I'm really excited about these technology deals and being able to add additional technologies in multiple areas, particularly in Discovery that no one else has, either our clients or our competitors that really will enhance the portfolio. And I'm excited about the expansive role that we have. We worked on 85% of the drugs that were approved last year by the FDA. Probably when we do the math at the end of '20, it will be higher. And so to have that much real critical role in getting drugs to the patient. And even though it wasn't a big dollar amount to have this really central role in COVID, both for all this year and for some period going forward is quite rewarding. So we like where we sit in the drug development paradigm. We like providing all these products and services to everybody as opposed to owning the drug or having royalties on the drugs. We like our value proposition a lot. And so we're increasingly more proud of what we do. And increasingly, we're pleased with the interface -- the extent of the interface we have with clients.

That makes sense. Perfect. Well, unfortunately, we are out of time, I think. But I thank you so much, Jim, for talking with us today. That was great and very helpful. And hopefully, you have a good and safe rest of the year.

You, too. Always a pleasure. Take care.

Thank you. Bye.