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

Okay. Good morning. We're going to kick it off. I'm Tycho Peterson from the Life Science team. It's my pleasure to introduce our next company this morning, Charles River Labs. For those that have questions, please submit through the website. And with that, I'll turn it over to Jim.

Thanks, Tycho. It's always a pleasure to be at JPMorgan, albeit virtually this year. So I would point you to our safe harbor statement, Reg G statement. And of course, we are in a quiet period. So we've had a lot of first and some significant milestones in the company. We worked on more than 80% of the drugs that were approved over the last 3 years. We've doubled the revenue of the company over the last 5. We're working at about a $15 billion market. So it gives us a lot of leeway and runway to grow our business in the current markets that we're in. We have a market leadership position in many of the businesses that we're in. We're in a high single-digit growth paradigm these days. Our Discovery business has worked on 85 novel molecules for our clients since 1999. We're obviously really proud of that. And we've invested $2.5 billion in M&A and have a greater than 10% return on invested capital since 2016. So our portfolio is this broad gauged portfolio going from Discovery all the way through to market approval. We have a $2.82 billion revenue base for the last 12 months. Our ability to work with new clients and discover new drugs and move downstream has really been enhanced significantly. Customer concentration is really quite low. We have no clients that accounts for more than 2.5% of our revenue. Employee base is around 18,000. We're in 20 countries now. And we have about 100 locations. Client base is -- it's interesting, it's changed somewhat. So we have over 40% in biotech, and that continues to grow disproportionately large to the rest of our clients and given a plethora of new biotech companies and the fact that they outsource everything, they're increasingly driving our top line. We have over 20% in other, which is agro and industrial, chemical companies, animal health companies, CMOs, and the device companies. We have about 1/4 of our businesses with the globals, which is big pharma and a little more than 10% with academics. Our geographic revenue is about almost 70% in North America, and the rest is outside of North America, principally Europe. I'd say it's probably going to stay similar to that, and so much of biotech is in North America. So it seems like the right geographic mix. So we think of ourselves as really the premier CRO with an integrated portfolio that spans the whole drug development research process. We're continuing to add to the portfolio through M&A. Obviously, through organic investment, but the distinguishing feature of the company is the organic revenue -- sorry, is the breadth of the portfolio. As we continue to expand it and have it be broader and deeper, that continues to distinguish us from the competition, we like to start very, very early with our clients to stay with them for the whole life cycle of the drugs. And we are increasingly doing that. And clients increasingly want to do more work with a smaller number of research partners because it takes time to stop and start with individual partners. So we like our broad-gauge portfolio. Our DSA, Discovery and Safety Assessment business is more than 60% of our revenue. Our core business, our research model business, which is how this all started is a little less than 20%. And our manufacturing business is also a little less than 20%. We've seen our DSA segment grow. I think our couple of year guidance is that business will grow at high single digits, RMS will grow mid-single digits and manufacturing at low double digits. This is in non-COVID times, that's what the growth rates have been. Research model and services business, again, it's our core business. We have about 35% share, twice as large as our next major competitor. We're selling 1 out of every 2 research models to anybody engaged in biomedical research. We feel good about that. We spend a lot of time and money on biosecurity, making sure that our animals remain pristine. Global footprint is really important. Again, and all of our businesses' proximity is critical to the clients. And so being close to the clients is essential, particularly the live product. High growth in China. We feel that will continue. That's correlated to us building out additional facilities in the middle and the southern parts of China, with still some large capabilities. We've seen nice growth in our service businesses, particularly our genetically engineered models business. We're creating animal models where we either are knocking in or knocking out genes. Our Insourcing Solutions business is also growing nicely. So we're pleased with that. And we acquired 2 cellular product companies, human-derived cellular product companies in 2000, HemaCare and Solero. So they're providing the cells for people doing basic research for cellular therapy. So doing basic search, process development for manufacturing. And those are businesses which should be growing in '21 and beyond at 30% or greater. So pleased with our RMS business. Taken on a whole different complexion with our gene therapy capabilities, sort of all line products with our research models, although some have become quite sophisticated, like our immunocompromised animal models and so new line products with the cellular products. As I said earlier, this is about 19% of our revenue and about 16% of our non-GAAP operating income. Our goal is to get this business operating at north of 25% operating margin. Our GEMS business did benefit from COVID outsourcing. In other words, we had clients who were doing their own molecular biology or production of these models that were closed, a lot of them were academics or pharma companies that were closed because of COVID, and they need to find someone to do the work or to take the animals and so we got the work. I think some of that will stick. We also got increasing amounts of Insourcing Solutions business because of COVID, I think some of that will stick. We're seeing -- continue to see a nice price mix benefit in that business, which has offset some of the lower demand that we've had in some of the geographic locales besides China. I want to remind you that the largest client of the DSA segment -- sorry, the largest client of research models is our DSA segment. So as we continue to grow the businesses, and as we've continued to buy competitors, in particularly the safety assessment field, we're using more of those animals ourselves. And we're working on creating a greater digital capability, so we're better connected with our clients. By the way, I'm on Slide 8. Looking at our Discovery Services business, we have a unique offering that we're really proud of. This has been all M&A based. This is about 7, 8, 9 years old. We bought all of these businesses. And we have chemistry. We have an in vitro capability. We have the medicinal chemistry and structural biology capability. We do high throughput screening. We have a terrific pharmacology business across multiple therapeutic areas. We have expertise in many therapeutic areas, particularly oncology and CNS, where we've done several acquisitions. We have -- as I said, at the outset, we've discovered 85 novel compounds for our clients that they couldn't discover on their own, many of which are in the clinic. This is a $5 billion or $6 billion outsourced market. The top 4 players, including us are about 40% of the market. So it's quite fragmented. There's a lot of academic players. We feel that we can compete with them quite effectively. And as we continue to buy businesses and invest in our current businesses, we should have a greater capability. I'll talk in a few more minutes about the power of strategic partnerships for this company. But as we invest in more strategic partnerships, some of those will become acquisitions. We just announced, I think, last week, the acquisition of a company called Distributed Bio, which had been a strategic investment of ours. We worked with that company for a couple of years, and they've given us enhanced large molecule discovery capabilities. So D Bio, Distributed Bio is really the next-generation antibody discovery capability. We looked at probably 20 different companies with discovery capabilities to find this one. We entered into a strategic partnership with them in October of '18. We wrote them a small equity check where we had a prenegotiated purchase price, assuming that we wanted to buy them. We've got the ability to work with them for a couple of years. We were their sales and marketing arm. So we knew what they promised to clients and whether they delivered it. We knew whether the science was as advertised, whether they really could deliver on the time frames and the quality of the science and have the antibody hits that they had -- they promised. We had an assessment of the people, whether they could work -- whether we could work with them or whether it would be an important part of Charles River if and when we did a deal. So all of those things worked out well. We executed our option recently. We have an $83 million purchase price of the $21 million earn-out. So it's a little over $100 million. This really makes us the premier integrated large molecule discovery platform. And this will expedite the antibody discovery process by several months. So this technology will help our clients find hits against targets that they're prosecuting much faster than anything else that's out there. So this is technology that no one else has, except us. Competition doesn't have it nor do the clients. Our Safety Assessment business is our largest business, we have about 33% share. The market is about $4 billion to $5 billion. We're clearly the global leader. So we do non-GLP tox. We do a lot of GLP tox. We do basic general toxicology. We also do more specialty toxicologies than anyone else. So that would be immunotox, gene tox, bone tox, ocular tox, immunotox, phototox, very high margin, high-value capabilities, very -- some of our competitors don't do any of those things and many clients, most clients don't do any of those things either. We have a comprehensive suite of bioanalytical services, and we have the world's largest cadre of veterinary pathologists. So I don't know, there's 500 veterinary technologists in the world and we have, I think, 150. That's the punchline of tox study. So you're looking at what's happening to all the whole organs, major organs in those animals and what's the drug effect, both positive and negative. We did 3 acquisitions of 3 of our biggest competitors in 2016, '18 and '19. They've been terrific. We've kept all the clients. We've grown share. We've gotten some of those companies to work with other Charles River sites and vice versa, worked really, really well. So we're so pleased that we did those, and that really catapulted us to play in the top of the heat. So DSA is about 63% of our revenue, 59% of our operating income. This is a business that we -- our goal is to get to 25% operating margins. We've been close. The demand has been extraordinary. Biotech, as I said earlier, with very few exceptions, biotech industry has no internal capability. So they outsource all of the tox. And there's a couple of hundred new biotech companies every year that will outsource all of their tox, not necessarily to us, but we have a shot at it. We have relationships with so many DCs that provide us an opportunity to at least bid on this work. And large pharmas increasingly closing down or repurposing their internal toxicology capabilities and utilizing us or companies like us. So our -- the demand is great, and our capacity situation is in great shape and our clients really depending on us. We continue to expand our therapeutic area of focus, and -- particularly in our discovery space. And this is a really important statistic, about 50% of our discovery clients remain with Charles River for safety assessment work. That's really significant. I think that number can and will increase. So the basis of the bargain here, the structural and strategic 5 was get with the clients as early as possible, keep them through the drug development process. And if and as the drug makes it, they're likely to work with us in the safety domain because we know the drug better than they do or better than anybody else does. Proximity is really, really important to clients. And so we have 30 sites in DSA. And so the notion of giving you my drug and not having it in my own location of this big pharma, they're much more comfortable with that if we have a site that's close by. So while it's a large infrastructure and a complex one, we're really delighted to have it and it distinguishes us from the competition. Moving into our manufacturing space. Microbial Solutions business is a business with about a $3 billion addressable market. We have about a 50% share by test volume. This is a business where we're doing quality control testing of products and services for products that are both sterile and nonsterile. So QC testing, the sterile and nonsterile products required by the FDA. So if you manufacture an injectable drug or medical device or something a product that is supposed to be sterile, let's say, something sold in the drugstore pharmacy, you need to ensure that it didn't become contaminated during the manufacturing process. So this is a business that keeps on giving because lots of finished product have to continue to be tested. We've got this fabulous endotoxin business, which is our first business, rapid detection. We have handheld devices, PTS platform with cartridges, which is this razor and razor blade phenomenon. We have a Celsis business, which is microbial -- rapid microbial detection, and we have an Accugenix business, which once you determine that the product was contaminated, it will tell you what contaminated, what is the bacteria. So we don't have any competitors with as comprehensive portfolio as we do. Looking at the Biologics business, a really fabulous high-growth business now, supporting the manufacture of biologics, including process development and quality control. It supports the developers and manufacturers with their testing, characterization and cell banking. So we're providing testing and assay development throughout the drug development and clinical manufacturing process. So we're testing the drugs before they go in the clinic and also after they've been approved before they would sale. So some clients do this work internally, but most people outsource it, particularly work that's going to the clinic. The outsourced addressable market is almost $2 billion. This market is growing at low double digits. So we love the market growth, and it's been growing through increase in number of vaccines. About 4% of the growth was through vaccines. You got monoclonal antibodies growing at about 9% a year, and of course, cell and gene therapy is the big driver that's growing at about 33% a year compound annual growth rate in this 3,000 cell and gene therapy products in the markets we tested for biologic testing. So this business is about 18% of our revenue and about 25% of our non-GAAP operating income. This is a business where our goal is to have about 35% operating margins. By the way, we have done that from time to time, from quarter-to-quarter. So the microbial business high growth helped somewhat by COVID, but doing a lot of rapid testing for a whole host of drugs. Biologics definitely helped somewhat by COVID, by vaccines generally and very specifically by cell and gene therapy. We also, by the way, have a small SPF egg, clean egg business that's reported in the manufacturing segment used for mostly veterinary and poultry vaccines, but also human vaccines. So we get asked a lot of questions about what COVID has done for us. We've been able to work right through COVID. We had strong business continuity plans, we remained open. We were fully staffed. Most of our people were PPE’ed up anyway. We watched our costs through very aggressive procurement focus. We were just very flexible with our clients. We gave faster turnaround times. We moved COVID work to the front of the line. We've done a lot of work with vaccine producers in COVID and a lot of work in therapeutic development. While we're pleased and proud to be -- have worked on COVID, and I'm sure some of that work will continue, it was a relatively modest revenue amount, about $50 million out of our total amount. So immaterial from a financial point of view, but as I said, something that we're quite proud of. Definitely, health care was an area that I think investors made a path to on someone because of COVID. And of course, we saw the funding paradigm remain quite strong. Just a change in funding, if you make some comparisons between 2005 and 2009 and 2020 funding -- annual funding went from $25 billion to $100 billion, by the way, on Slide 16. FDA approvals from that period went from 22 a year to 53 last year and preclinical compounds have gone -- have doubled from 5,000 to 10,000. So we're seeing just a huge increase in funding, the impact of funding, greater innovation, much more externalized R&D by our clients. Clients have been developing and prosecuting their full portfolios. We rarely, if ever, hear a client talk about not having enough funding to do their work. We figured they have at least 3 or 4 years of cash available, and we see no reason why the funding paradigm won't continue. If you look at our growth rate, say, from 2014 to the first 9 months of this year, it's a 14% reported revenue, CAGR. We had 5% to 8% organic growth between '14 and '17, and 6% to 9% between '17 and the last 9 months. So accelerating top line organic growth. To commentary on growth of market, us taking share, building out a stronger portfolio through M&A and through aggressive investments in these businesses. So I want to highlight quickly 5 strategic imperatives that I think are important for you all to understand with the company. We're very focused on strengthening the portfolio, as I've mentioned a few times, both innovating scientifically, having access to emerging therapies and technologies, focusing much of our attention on cell and gene therapy work, continuing to do M&A strategically and aggressively and continuing to do more and more strategic partnerships, which I'll talk about in a moment. Our criteria for M&A are quite specific. We try to not do any deals that we prefer them to be accretive out of the box, occasionally they're neutral. ROIC needs to meet or exceed our cost of capital in the first 3 to 4 years, and we're quite religious about sticking with these financial metrics and not chasing the numbers. So we will continue to build out the portfolio because it distinguishes us from the competition. That's what the clients are looking for. They want to do less work internally. Biotech, many, many biotech companies could not progress their earliest discoveries without us. So let's just break down the 3 buckets. So strategic M&A, we've done 14 deals since 2016. We spent $2.5 billion, generated greater than 10% return on invested capital. We're just doing a much better job integrating them. We have a full-time team that does the due diligence, put together an integration plan stays with the company during integration. We have a full-time integration lead that goes on and goes in. So we're much more comfortable with our ability to get these deals done well. We've done a bunch of strategic partnerships, actually 10. We've announced most of them to date with about a $30 million investment. It's not a big investment. So we're either writing a small equity check or providing a small amount of debt [ financing ]. We're becoming a sales and marketing arm for some period of time. We've done deals in large molecule, which is D Bio that I just talked about, AI, next-gen sequencing bioinformatics and several others. We have probably another 10 that are at letter of intent stage and probably another 10 where we've had early conversations. So trying to find cutting-edge technologies that would make us a better company and strengthen the portfolio. But we want to work with them and see whether they're any good, does this science really work, are they're responsive or not. And so we -- and some of these companies, we have a predetermined take out formula. So some of these companies we'll buy. And the risk that we make a mistake is very, very low because we have 2 years of working with the company. Some of them, technologies won't pan out and we'll just walk away and some of them will continue to be their sales and marketing arm. And then the third bucket, which is quite interesting, is that we have venture capital relationships, where we have either -- we're either a limited partner with a bunch of these companies and we have somewhat greater access to their portfolio of companies and we have a whole host of venture capital firms that don't want our money, but are working with us strategically, and we have access to their portfolio of companies. And then we have a bunch of strategic venture capital firms that we don't really have a strategic relationship with, but because our service portfolio is so prominent that they're using us anyway. So if you roll all those together, greater than 10% of our revenue is coming from VC portfolio of companies. So that's gotten really large, really fast, and it's growing nicely. Cell and gene therapy, as I mentioned several times is a huge opportunity. You've got 2,300 active programs. The vast majority of those are preclinical. It's expected that 10 to 20 drugs will be approved by the year -- cell and gene therapy drugs will be approved by the year 2025. Greater than 750 of these are in clinicals, greater than 80% are in Phase I or earlier. So that's most of them, and that's what we do. You get greater than -- around 200 INDs will be received annually. And it's a huge market with about $16 million of funding. So if you look at our portfolio, I’m on Slide 21, we're doing cell and gene therapy work across the whole portfolio. So in the Research Model business, we have immune-deficient models. In Biologics, we're doing a bunch of analytical testing for viral gene therapy or viral vectors needed to perform efficacy testing. We have microbial solutions that's doing advanced rapid screening. In Discovery, we've got these -- in the safety, we got this combination pharmacology and safety studies. We're doing bioanalytical testing, immunogenicity testing, efficacy evaluations. Then of course, we have our HemaCare and Solero cellular product businesses. So if you roll up cell and gene therapy, which is growing faster, the business opportunity for us is growing faster than our core business. It's now greater than 5% of our revenue. Second strategic imperative is driving efficiency. So we're looking for synergies across our portfolio all the time. We're looking at process optimization and harmonization. We're looking for scalability, so across all of our safety sites, we looked at best practices, the same with Discovery, same with RMS. So we believe that there’s meaningful operating margin opportunity and as we get above -- our current goal is to get near or at -- was to get near at 20% for last year, 2020. And our goal, we believe that structurally we'll be able to improve on that meaningfully. We're all about speed. So we decentralized decision making and letting our businesses run autonomously. We're expanding the portfolio, where we're looking to take white space out of the process. We've told our clients we could take a year out of drug development process, and we're very close to doing that right now, and we'll continue to focus on that. We're trying to have best-in-class technology. As I said a little bit with our technology deals. We're focusing on building out a stronger digital enterprise by digitizing our data, which eventually will let clients work with us digitally and self-educate themselves on how studies are doing without calling us. So the digital connectivity with clients will enhance our speed and allow us to continue to scale the business. And lastly, and certainly not -- and perhaps most importantly, is we have to have the best people in the world possible, and that's having a culture that attracts people, that retains them, that motivates them. It's the culture of inclusion and well-being, culture where we appreciate them with our career opportunities. We're very focused on our corporate citizenship. We've strength -- we continue to strengthen our Board. We now have 25% of our Board members that are women and 8% minorities. We're going to continue to work on diversity there. Focused on diversity and inclusion. We became a signatory to the CEO Action for Diversity & Inclusion, which affirms our commitment to equality. Very focused on environment. We have a $5 million Annual Sustainability Capital Fund. We're focused on reducing our greenhouse gas emissions by 50% by 2030. We've made great progress in 2019. We donated to 300 different community organizations that was suffering as a result of COVID. That was really, really important. We feel really good about that. So providing an environment where our employees can be proud, and we can be proud about how we function in the communities in which we work and in the world in which we live. So just to summarize on the last slide, we've had from 2016 to the last 9 months, we've had 14% compound annual revenue growth. We've had 17% compound annual operating cash flows and 14% free cash flow growth. Our operating margins have gone from 19.2% to 20.1% over the last 12 months. Obviously, we don't have final numbers for '20 out yet. And our EPS has grown by 15% over that period of time. So we're really, really pleased and proud of our financial growth. Now we've doubled the size of the company. We've talked about being able to do that again going forward. We are really pleased with the demand that we see in our business and the role we play in supporting clients who really need to outsource work, and we'll continue to build and broaden the portfolio. And Tycho, I'll stop here and see whether we have any questions.

Thanks, Jim. I'll start on Distributed Bio. As you talked about, you obviously had an investment there going back to 2018, what drove the decision to acquire them now? And is this a business you could do other M&A around?

Yes. So as I've said, we literally looked at 20 different discovery platforms. So I think as you know, Tycho, we have a pretty robust small molecule discovery platform. That's what's allowed us to discover those 85 compounds for others. But obviously, there's a lot of work being done in the large molecule space. So clients are demanding it. And we kept finding ones that we thought were good, but they just weren't good enough. And we found this one that looked great. But we wanted to prove that it was world-class. They were unique. So this is the first one that we've set up on this technology deals. So it's a great structure, where we're working with them daily, like we're part of the company. We got great feedback from very discerning, very tough, very fast-moving scientifically oriented tiny biotech companies who like had no tolerance for lack of speed or success in discovering these antibodies. And they did really, really well. We know that we got to know the people well. I did mention that because it's just happens and stands. But we have this large growing cadre of businesses in South San Francisco. This business is actually 200 feet away from where our South Francisco operation is. So we just rolled it in. So really pleased with the technology. We wanted to give it a couple of years to make sure that we've added the technology well. As I said, we had an option to buy at a predetermined price. I do think this will be a template for many others. They won't necessarily be big deals or huge purchase prices as this one wasn't, but they will grow very fast, disproportionately fast. So it gives us technology that no one else in the world has. They probably will have good to very good operating margins, just given the nature of the technology, and I think the prices we can get for them. And I mean, I love this one because it fills up the portfolio nicely. And I can just tell you from the nature of the clients we've already been working with that -- and the feedback that we've gotten from large and small companies, pharma and biotech, more heavily biotech, that this is a good sort of learning. It's a good learning for us for other types of deals like this. So we will inevitably do. And as I said, we have 10 of these signed up. Some of them will fall by the wayside and some of them we'll buy.

I think you had originally talked about $1 billion in annual revenue through strategic M&A through 2024, following Distributed Bio. Can you just talk about areas, size of targets what the buying landscape is like today for acquisitions?

Yes. So I think what we said is that our goal is to double the size of the company over the next 5 years and $1 billion of that would be through M&A -- it would be revenue. We still think that's possible. And where we’re back at work seriously on the M&A front, our leverage is way down. We're showing really good our balance sheet and access to capital. We've got an integration team that's ready, willing and available to do due diligence and do the integration work on these deals. And we have several conversations, not really new, Tycho, we always have several conversations going on. We have several conversations going on now. In different parts of the portfolio, I'd say it's more discovery-oriented, couple of things in RMS, a couple of things in Biologics, but I’d say it’s very heavily discovery oriented, which is great. That's a great place for us because that business is, I think, reach critical mass that can be larger. We’re interested in more -- large molecule stuff, cell and gene therapy stuff and bioanalytical capabilities, more therapeutic area-based growth in Discovery, for instance, particularly in oncology and CNS, maybe some other therapeutic areas as well. And there's a fair number of targets out there. I'd say that it's nothing really large. The other thing that I've said is I do an NPI every year, if I could. It wasn't trivial, but it's a significant investment, but one that we can afford big enough investment to really change the slope of Charles River's top line and big enough to really do a lot more meaningful work for clients. Those -- there's not a lot of companies that size. There are a few that we're looking at, but I'd say most of them will probably be smaller. Maybe some will be that size, but that feels like a good ZIP code for us. So we have tight and tough financial metrics. We're not going to chase this. But there's definitely some deals, both in the strategic transaction deals like Distributed Bio and straight up M&A that will definitely meaningfully improve the portfolio, and that's what we're up to. Our goal is to just have a portfolio that the clients -- I talk to clients all the time and I've been speaking to some over the last month in particular, and mentioning several of the areas that we're looking at, not necessarily company by name, but gee, we really would appreciate if you could do this because we need that, and we don't do it ourselves and we can't find a lot of places to do it. So we have a pretty good road map. I will be surprised if we don't get some deals done in '20, but there's no assurance -- in '21, but there's no assurances.

You had alluded earlier last year during the pandemic that clients were not able to access their own sites and that drove kind of higher penetration levels toward outsourcing. Is that the new normal now? Or do you think is the risk of kind of insourcing as we think about COVID cases winding down in the back half of the year?

It's hard to give you an exact answer. I would say based upon conversations that we've had, and I've had some of them myself with clients that, for sure, a fair amount of the work that was outsourced, you can see they're happier that it does to us now and they're saying, why did we ever do it ourselves. So I think some of that will stay out. I think that some of the larger companies, in particular, I'm talking about big, big, big pharma, U.S. domestic and foreign, although even more of them are foreign and some of them just have a historical [indiscernible] to do the preponderance of their work in-house, I think they were kind of stunned by what happened to them. And so we've done some work that we wouldn't otherwise have had, and I’ve had some of those conversations recently with some of those companies, and clearly, they were happy with the work. Clearly, they are open to it. Clearly, some of that will be maintained. And the next time there’s a large RFP, I think more work will be available. Now whether we're able to move them over time, like we have with so many of the big pharma companies to do the vast majority of their work and in some cases, all of the work externally we’ll see, well, one doesn't really want to benefit from COVID. I do think all it did was underscore the value of our -- underscore the strength of our portfolio and the value proposition that we've always given them. And when I say value proposition, less from pricing and more from just being able to support them at a time where maybe they can't support themselves or they don't have the infrastructure to do it, or in this case, they had the infrastructure, but it wasn't available. So it's definitely an opening for increased amounts of work by some clients that already did a lot of work with us and some clients who didn't.

Maybe last one in the last minute here, just on manufacturing. Obviously, you had good numbers there up 12% organic in the third quarter. I know cell and gene therapy has been helping as does the COVID work. Maybe just talk to the durability of some of the trends you're seeing on the manufacturing side?

Yes, it continues to feel like a really strong business. It has always been -- microbial has been disrupted a bit by COVID. I don't think I said that in my prepared remarks. We just -- a lot of systems have either been sold or clients want to buy them, but they can't let us and [ replace ] them. I think that's a short-term transitory issue. I'd say that the demand for the microbial business is quite strong. There's a lot of manufacturing going on in vaccines and other things. And our technology is uniquely strong. I'd say in the Biologics business, that business really popped in the third quarter as you saw. We now have more capacity across the world, particularly in the U.S. at a time where there's just a lot of biologics -- there's a lot of large molecule work generally, a lot of COVID work specifically and a lot of cell and gene therapy work. So I think that biologics trend is a long-term trend. I think microbial is as well. So I'm not going to give you new numbers. We'll do that in February, but the demand feels very strong for that segment going into 2021, both competitively -- I think we're in a great place competitively, and I think the market demand is really terrific. There's less M&A in those 2 businesses, small amounts, but really, really nice pure organic growth opportunities.

Great. Jim, we're going to leave it at that. Thanks for taking the time. Enjoy the rest of the conference.

Always a pleasure, Tycho. You too.

All right.

Be well.