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

Good morning. I'm Todd Spencer, Corporate Vice President of Investor Relations. On behalf of all of us, I would like to welcome you to Charles River Laboratories' first completely virtual meeting with management. We are pleased to have members of our senior management team here with you today in this virtual environment, led by our CEO, Jim Foster. There will be 2 question-and-answer sessions during the event as noted in the agenda. Today's slide presentation is posted on the Investor Relations section of our website at ir.criver.com. An archive version of this webcast will also be available on the same website. I'd like to remind you of our safe harbor and the use of forward-looking statements and also that we will be speaking primarily to non-GAAP financial measures covered under Regulation G. You can find additional information on these disclosures in the slide presentation and on the Investor Relations section of our website. And now I am very pleased to introduce Jim Foster, Chairman, President and CEO.

Thank you, Todd. I'm delighted to welcome you all to our virtual investor conference. We're delighted to be here with you today. And before I begin my individual comments, I'd like to introduce you to our other speakers today. So immediately following and myself will be David Smith, who's our CFO -- Executive Vice President and CFO. Following David Smith will be another British Smith, Daniel Smith, who's the Executive Director of the Global Cell and Gene Therapy Portfolio. And Daniel recently joined us along with our Cognate acquisition. So we're delighted to have him as a member of the Charles River family and delighted to have him speaking to you today on this important topic. Following Daniel will be Birgit Girshick, who's the EVP of Discovery and Safety Assessment, Biologics and Avian Vaccine Services. So Birgit has a broad portfolio. And she now has Cognate actually reporting directly to her. And then Kerstin Dolph will follow Birgit, and she's the Vice President of our Biologics Solution, a very high growth, important business for us, and she'll talk to you about that business in depth. Following Kerstin will be Mike Austin, who also recently joined us -- sorry, he's the Vice President of Cell and Gene Therapy CDMO, and he also recently joined us with the Cognate acquisition, and he's going to go deeper on contract reduction aspects of that deal. Then we'll have Colin Dunn, who's the Senior Vice President of Global Research Models and Services, talk to us about our RMS business, including our HemaCare and Cellero acquisitions. And final presenter will be Julie Frearson, who's our Vice President of Strategic Alliances, who'll be talking to you about a whole host of very important strategic relationships we have with regard to cutting-edge technologies. So what our goal is today is sort of multifold. One is we're obviously going to give you a general update of business and the constituent parts and pieces, how they're doing, where they're going. Their scale and size. We're going to talk significantly about our cell and gene therapy capabilities, both across our historical portfolio, and obviously, with regard to our new businesses, which have been acquisitions over the last year, specifically in the cell and gene therapy space. We're also going to go deep on our partnership strategy, which is a critical part in building out this portfolio, having access to meaningfully cutting-edge technologies throughout our portfolio, where those stand and what the nature of those are. And we're also going to give you new long-term financial targets, actually 3-year targets for the business. So the demand is fabulous for what we do right now. The portfolio has never been stronger. And so we believe that we're positioned to deliver a low double-digit organic growth over the next 3 years, and with earnings growing faster than our sales growth over that time frame. So when I think about the sort of headline statistics of this business, there are several of them. One is that we worked on more than 80% of the drugs approved by the FDA over the past 3 years. Second, we've doubled the revenue and non-GAAP EPS of this company since 2015. Third, we retained the #1 market position in several of our businesses, principally research models, safety assessment, which, of course, is our largest business and microbial solutions. We are now working in the $20 billion outsourced addressable market. We -- as I said a moment ago, we expect low double-digit organic revenue growth from 2021 through 2024. We've actually worked on 85 novel molecules that we have -- targets that we discovered for our clients since 1999. These are targets that our clients couldn't discover on their own. We don't own the IP on those, but we've provided those for our clients. And we have invested around $4 billion in 25 acquisitions over the past decade. And they've all met or exceeded our investment criteria in terms of our return on invested capital. So an overview of the company is that we are a leading nonclinical CRO. Our LTM, last 12 months, revenue were a little over $3 billion. We can work with our clients from a time they've identified a target all the way through market approval. And all of the constituent parts and pieces within that. So while we don't run the clinical trials, we now can manufacture drugs for clinical trials. We do the safety testing before drugs go in the clinical trials. And we do a lot of our task work contemporaneously with the clinical trial work. We have 19,000 employees. So we're approaching that sort of magical 20,000 employee level. We have now over 100 facilities in more than 20 countries. So we have very strong proximity to our clients, which is increasingly more important to that. Client base is interesting. Probably almost a decade ago, our biotech clients eclipse our global. Global clients would be sort of big pharma companies. Sort of eclipsed the pharma clients in terms of total revenue, certainly eclipsed them terms of growth rate, I think that will continue. Our academic and government piece has actually shrunk as a percentage of the whole because we've done so many acquisitions, but it's about 10% of our sales. And almost 20% of our sales are in this other category, which is agricultural and chemical companies, the CROs, animal health companies, life science companies, et cetera. Geographic footprint has remained relatively constant. It's about 2/3 North America and 1/3 rest of world. I don't think that's going to materially change given that the preponderance of biotech companies are in North America and the preponderance of our revenue comes from biotech companies. And so we are a very, very important partner to biotech companies. So I think it will probably remain 2/3-1/3. I think it's distinguished the company from our competition. Increasingly is the power of our portfolio, both the breadth and depth of the portfolio, the uniqueness of the portfolio. It's our key competitive differentiator. So we start with target identification, as I said before, going all the way through to market approval and most of the activities in drug development along that continuum, except, as I said, for running clinical trials, which is something we did this years ago, got out of it because we just didn't think we added a lot of value. So we like to start -- we'd like to engage with our clients at the very, very earliest part of their business. We want to engage with them when the drug is developed or discovered. And so if we can help them discover the target it's great. If they have the target, we can help them design the drug against the target. If they've already designed the drug, we can help them do all the testing both in vivo and in vitro, both GLP and non-GLP before the clinic and after the clinic. Really, really important role that we have. So you see that our DSA business is 2/3 of our revenue. Our toxicology business or safety assessment business is our biggest individual business in this segment is our biggest segment. Our research model business is about 20% of what we do and our manufacturing business is about 20% of what we do as well. So that's the segment profile. So we have this integrated nonclinical business that spans pretty much the whole drug discovery and development paradigm. The company was started with research models, and then we moved into research services. You can see here that about 19% of the revenues are RMS and about 17% of the non-GAAP operating income. We do think we have an opportunity to continue to expand our operating margin in this business. We've added to our historical research tools, which are small laboratory animals. We've added to that cellular products to this toolbox. Obviously, a critical tool for cell therapy and with our acquisition of HemaCare and Cellero, where we have a critical role in all of this. GEMS, or Genetically Engineered Models and Services business has grown rapidly over the last decade. Grew even faster because of COVID, where clients who did some of that work themselves, the molecular biology of the breeding they did themselves, had it outsourced to us over COVID, and we did such a good job we kept a lot of the work. These complex animal models, which genes have either been knocked out or knocked in or added to express a particular disease data. The most important mammalian tools in discerning whether the drug is likely to work in people, that translational leap is obviously important, but those GEMS models are really running for it. Our IS, or Insourcing Solutions, business becomes increasingly more important for us as we manage other people's animal facilities around the world, both government, academia, biotech and pharma. We have this wonderful new business, our CRADL initiative where we have incubators, mostly for small companies, not entirely, to utilize our space. We have facilities in Cambridge, Massachusetts and in South San Francisco, and we will have just gone into Shanghai, and we're likely to have facilities in other parts of the world. So small companies can utilize our space as they're growing their businesses. As their businesses become successful, they then can work with us in that space or take advantage of greater amounts of our services. But a nice high-growth business for us, lower margin, at least the ISPs, but very low capital employed. So the return on invested capital is similar. CRADL business has nice high growth and nice high margins. We're getting nice mix and price benefit in our sort of mature markets, U.S., Europe and Japan. China continues to be our largest growth part of the product business. It's about 10% of RMS revenue. With a premium player, we have about 30 -- I think 35% share. As we build new facilities, we take advantage of the enormous demand by pharma and biotech in China. Chinese government continues to invest a huge amount of money in pharmaceutical and biotech companies, and they need high-quality research models to do with general research. So we're very pleased with our business in China. Interestingly, as we've done so many acquisitions, particularly of our safety assessment companies, we have become -- so CRL has become our largest client -- DSA is the largest client of RMS. And so we're vertically integrated there, and that's really powerful as a competitive differentiator. And increasingly, our digital relationship with our clients, as you'll hear more later, is going to be an increasingly important differentiator between Charles River and competition, improving the efficiency of the client experience. Our DSA, Discovery and Safety Assessment, business is the largest part of the company. And as I said, it's about 2/3 of our revenue, about 57% of our non-GAAP operating income. The largest opportunity to expand our operating margin is in DSA because it's the biggest part of the business. The demand for discovery and safety assessment over the last year or so is the strongest we have ever seen. It's unrelenting in a very positive way. Instead of building in-house capability, biotech depends on Charles River. They would not be getting drugs to market without Charles River. They don't have the desire, the time, the finances or the need to bring these services, the services that we have inside. And big pharmaceutical companies who used to do many of the things that we do are increasingly either shutting those capabilities down, repurposing the space, shrinking those capabilities or stopping them entirely because if you look at something like safety assessment, we do that so much better than our clients ever did, at a much larger scale, with much deeper science, with much greater history and knowledge of how the new molecule might operate -- might perform. And so between biotech outsourcing and pharma outsourcing, the demand is really quite significant. So all the while, we've been adding more capabilities mostly through M&A, but increasingly through these strategic initiatives to have a stronger portfolio than the competition. Wonderfully, 50% of our Discovery clients remain with Charles River for safety assessment. So we're getting that pull-through that we aspired to have for such a long time. So pleased with that. Look, it's all about speed to market. So if the drug is progressing and we do really good work for the clients and we understand the molecule as well or better than the clients, why would they want to go elsewhere for the safety assessment? I would argue they wouldn't. All of our sites in DSA, which is about 3 dozen, were acquired, and they're all over the U.S. and Europe. And so all things being equal, clients prefer proximity. They can get the work done. If they're a French company, they can get the work done in Europe or even in France, that's better. They use our facilities in the states. If we don't have -- when we didn't have something in Europe, or if one of the European sites is full, but they really like dealing in the same language, same currency, same time zone and pre-COVID when they could travel to the sites. If you look at our manufacturing solutions business, it's 18% of our revenue, growing very nicely, but 26% of our operating income, so a more profitable segment than the other 2. We obviously have a nice footprint now in cell and gene therapy with HemaCare and Cellero, with Cognate and with Vigene, which has been signed and hasn't closed yet. And those new businesses, which are straight up cell and gene therapy, provide the background and the context for clients to use us in other parts of our business like in DSA, like in biologics and even in Microbial and RMS. So really emboldens the rest of the portfolio. So that's going to be very high-growth and kind of a new aspect to manufacturing biologics, which is really coming to its own in the last few years, very high growth, proving margin business, driven by the plethora of large molecules, monoclonal antibodies, oligonucleotides, et cetera, et cetera. But recently, really, really driven by COVID-19 vaccine production and testing and some therapeutics in -- for COVID and also all the cell and gene therapies. So really wonderful business for us with high growth and greater capacity. And our Microbial Solutions business has this enormous demand for our high technology, unique IP for this very rapid and efficient testing platform, both sterile and non-sterile products, both for the pharmaceutical industry and consumer product companies, and we're seeing really wonderful growth and terrific margins there. We have a small clean egg business with those ICUs, mostly for veterinary vaccine production, particular poultry vaccine production, obviously, but also for some human flu vaccine as well. So high growth, high-margin segment of the business. So we're really pleased with our expansion into the CDMO sector -- cell and gene therapy CDMO sector. We got out of our CDMO business because we were under scale, and we didn't think we could make a difference. And we were going to stay out of it, and it's become increasingly clear to us that our clients really want us to be able to provide manufacturing capabilities for cell and gene therapy because there's very few providers who do it well. They like the fact that we have this broad portfolio, and this would be an important part of it. They don't want to stop and go outside and have somebody else manufacture it. So a Cognate deal, which we just closed in March of this year, gives us cell therapy, GMP manufacturing capabilities in the U.S. We have facilities in Memphis, Baltimore, the U.K. and Sweden. We also have the capability to produce plasma DNA and viral vector. It's mostly European base. It's about $140 million run rate business. That would be the estimated run rate for this year. That business is going to grow greater than 25% over the next 5 years. Vigene, which we signed and haven't closed, is sort of the conduit of this business. The primary focus here, this is U.S.-based, is viral vector manufacturing and also some plasmid DNA capability, which we have in Europe with Cognate, now we have that in the U.S. with Vigene. Smaller business, sort of a $30 million to $35 million annual run rate, but also growing at 20% to 25% or greater. So you can see the dramatic accretion that we're going to get to our top line because of our cell and gene therapy businesses. HemaCare and Cellero will grow at these rates as well. And of course, having HemaCare and Cellero first as kind of a foundation and basis for cell therapy and manufacturing business. It's a wonderful to have Cognate, in particular, on top of that. So really, really excited about entering the CDMO sector in this very sort of high-value, high-quality niche way. So look, cell and gene therapy is going to be a principle, if not the principle high-growth modality for drug discovery and development over the next, I don't know, several decades. Charles River is in the business that's supporting almost everyone in the world of drug development business -- in the drug development business with our whole suite of products and services. So we have to have an exceptionally strong capability in cell and gene therapy to support our clients. They need us. So really, really excited about our capabilities. Complementary capabilities have been Cognate and Vigene on -- if you take a look at the 2021 run rate, the cell and gene therapy capabilities will be greater than 10% of our annual revenue and growing disproportionately fast. So we'll have a very, very important impact on the growth and development of the company. But equally as important, our ability to service these very important high-growth cell and gene therapy companies that are being created all the time by the venture capital industry. So we love our capability in U.S. and Europe. Maybe we'll expand that to other parts of the world with all the capability to do manufacturing and have capability both in the cell and gene therapy side. The CDMO segment is going to grow at -- the addressable market is probably $2 billion, $2.5 billion and it's going to grow disproportionately fast. So we love being in this business. We have entered this business as a leading player, and I think we're on our way to be the leading player certainly in the cell therapy side. Really interesting to look at where we are now going from discovery to other parts of the drug development pipeline, but also other parts of Charles River in small molecule, large molecule and cell and gene therapy. So when we bought Argenta and BioFocus, which is, I don't know, 7 or 8 years ago, we bought a small molecule platform. We had the capability, as I said earlier, to discover small molecule targets and design the drugs for our clients. We've discovered, as I said earlier, 85 novel compounds. So this has really been a really important business for us on the small molecule side to do these discoveries and then hopefully hold out of a client to the whole nonclinical development phase. We just bought Distributed Bio a few months ago after being -- having a partnership with them for a couple of years. And after looking at many, many large molecule discovery platforms, none of which we felt were as robust as D Bio. And this gives us the ability to use their antibody library to discover antibodies for our clients that they haven't been able to do themselves and get a larger number of kits than other technologies. And then if we do that for them and have us -- have them use our safety assessment ability and our testing capabilities as well. So from discovery to all of those areas in large molecule. And then if you look at cell and gene therapy, as I said a moment ago and you look at Cognate and Vigene, it takes us very, very early discovery there providing ourselves, doing the basic research in all of the phases of process development, testing, contract production and helping get the cell and gene therapy drugs into the clinic. So really, really strong focus on these advanced therapies with a nice mix between biologics and small molecules. We've had a very, very interesting growth journey over the last decade. Like so many companies, we had a really strong 2007 and '08, and then most of 2008, the end of 2008, like so many companies, the music stopped when they economy fell apart, and we had declining revenue in 2009, '10 and '11. I think we worked through that well. We had too much space and too much COGS, but we managed it well and then fix begin to flatten out and grow. In 2012 and '13, we had low single-digit growth. You can see in 2014 through '17, we had 5% to 8% organic growth. And from 2017 to last year, we had 6% to 9% organic growth and really pleased with that growth rate. And as you can see from the slide, so much of our growth was benefited by meaningful strategic, high-growth, high-margin acquisitions, which gave us a portfolio that was kind of unassailable from a competitive point of view and really critical from a client point of view. So we're really, really pleased and proud with our growth trajectory over the last decade and the way we've added to the portfolio through M&A. So we're in about a $20 billion-ish market. You can see the parts and pieces here, Discovery and Safety at a similar size, about $5 billion. CDMO space and cell and gene therapy is relatively new at about half of that $2.5 billion, Biologics a little less than $2 billion, Microbial around $3 billion and RMS also a little less than $2 billion. As I said earlier, we're the #1 -- we have the #1 market share in Research Models, Safety Assessment and Microbial. And if you think about how we continue to build out our business or what the growth dynamics will be over the next 5 to 10 years. If we have a $20 billion marketplace, I don't know, probably growing at 6% or 7% and we have kind of a $3-ish billion base, we have a big, long runway ahead of us just staying focused, investing aggressively in the areas which we're currently in, doing some acquisitions as appropriate and available and doing a bunch of strategic deals to continue to round up that portfolio. And so we just have to look straight ahead, have the best possible people and have extraordinary execution, and that's really what we're focused on. The change, we get a lot of questions from shareholders about when is the next cycle coming? And what's different about now versus years ago? And it's so different. I mean, this business -- this industry and our business hasn't been cyclical for a long time. You have less pharma companies and more outsourcing by the few remaining pharma companies, and you have thousands of new biotech companies. And the amount of investment by -- the amount of investment in the public markets, in particular, in biotech industry is amazing. It's gone from $25 billion kind of an average between 2005 and '09 to $130 billion last year. The numbers of drugs being approved a year while still should be -- could and should and hopefully will be better is more than double. And the number of preclinical pipelines and compounds in the pipeline has more than doubled. So that's really quite powerful. So the whole biotech industry has changed and delivering new therapies, being a discovery engine for big pharma. Big pharma licenses in -- acquires the license is then 50% to 70% of the drugs. So focus on biotech is so important. And a lot of the funding for biotech comes directly from big pharma as well. So we think that there's at least 3 or 4 years of cash if the music stopped today for the biotech industry. It's not going to stop as long as these new modalities continue to occur, continue to save lives, continue to build real companies with escalating revenue and profitability, the investment community is going to continue to look favorably on the biotech industry. Let's talk about this 2-year targets that we gave at Investor Day in 2019. So we said RMS revenue would be low to mid-single digit and operating margins would be above 25%. We didn't meet those goals because of COVID. So we had declining revenue in 2020 and our operating margins dropped to 22%, but entirely COVID related. Our DSA business, we said high single digits, and we achieved that 9.4%. DSA, we said mid-20s for operating margin, and we achieved it at 23.4% or almost achieved it, on our way to achieving. Manufacturing, we said low double digits, and we did 10.4%, achieved that. We said mid-30s for manufacturing operating margin, we crushed that at 37.4%. On a consolidated basis, we said high single digit. We delivered 7%, and we said that we would hit 20% operating margin and we did last year. Really, really pleased and proud of those results. And consolidated with acquisitions, we sit at least low double and we did 11.5% and we said 20%, and we did the 20%. So we're really pleased to have achieved most of those goals in 2 years. And so I'm delighted to give you the goals through 2024. They are as follows: In RMS, we're going to go from low to mid-, which was our last target to now mid- to high single digits. We said last time that we would have operating margins above 25%, and now we're saying high 20s. So we're looking for improvement in both top line and bottom line in RMS. In DSA, we previously said high single digits, and now we're saying around 10%. We said operating margin for DSA in mid-20s, and now we're saying at least mid-20s. So higher growth expectations over the next 3 years for the DSA segment as well. In Manufacturing, we said low double digit, and now we're saying approaching 20%, so much, much greater growth in Manufacturing. And we said mid-30s for operating margin and now we're saying that those operating margins will essentially stay the same around the mid-30s, principally because of the headwind from Cognate. So Cognate will help invigorate the top line growth. It will be a bit of a headwind to the bottom line. And on a consolidated basis, last time, we said high single digit revenue growth, and now we're seeing low double. And we said 20% operating margin, and now we're saying 22.5% operating margins. We're really, really delighted given the unprecedented client demand, given the strength of our portfolio, given the great growth metrics that we enjoyed over the last couple of years to now give you these 2024 goals, which we're proud of and we're quite confident we will achieve over the next 3 years. So what are the important imperatives for us? As I said, it's all about the portfolio. We distinguish this company by the strength and depth and scientific rigor of our portfolio, getting our arms around emerging technologies and access to new modalities, moving into areas like cell and gene therapy. While our organic growth, as you just saw, will be quite significant, we think we can continue to grow even faster through M&A and additional strategic partnerships. So very, very focused on always improving, enhancing, growing the portfolio, both size and scale. So let's look at that. I love this slide. So how have we done it so far? And how will we continue to do it? So we spent $4 billion in more than 25 acquisitions since 2012. We have acquired all of our discovery businesses. We've acquired all of our safety assessment businesses, we've acquired all of our cell and gene therapy businesses. We wouldn't have any presence in any of those areas without M&A. We've done it very surgically, very strategically, I think, very responsibly from a financial or a return metric point of view. We have a very strong integration team now that does the basic due diligence. Valuation models basic due diligence does a 90- or 100-day acquisition plan and stays with every target for 6 to 12 months. So we have a high degree of confidence that we can continue to do successful M&A. Equally as important is our strategic partnerships. We have a dozen of these small deals that we've signed, about $40 million committed. So relatively modest financial amount where we will either provide a small amount with equity or debt financing, we will be a sales and marketing partner with these companies for a year or 2. In most cases, we have a right of first refusal to buy them. And in many cases, we have a predetermined formula to buy them, a takeout formula. And so we get to see whether these cutting-edge technologies are real, whether the clients like them, whether they're responsive to the clients, whether we think the scientists are ethical, whether they have business sense, whether they're responsive to the clients, whether they work well, or whether they get don't work well with us. So Distributed Bio was one of those deals that's a large molecule discovery platform. We worked with them for 2 years and bought them. We have deals in translational biology, bioinformatics, in next-generation sequencing, in 3D tumor modeling. We have another several deals that we haven't signed yet but are at the letter of intent phase. So very, very important part of examining cutting-edge technologies, value adding them without jumping in with both feet, but jumping in when we believe that these are good companies. So this will always be an important part of our strategy. And then many years ago, we did our first -- we became LPs with our first venture capital company. And now we have, I don't know, 6 or 7 or 8 of those deals. So we have kind of 3 classes of venture capitals. 6 or 7 of them where we're limited partners. We've actually invested money and we get access to the senior partners of these firms to work on strategy and new modalities and even a little help with our M&A. We get access to their portfolio companies. We have another 6 or 7 venture firms that work with us strategically, but don't want to need our money. We have another probably 6 or 7 that don't want to need our money and don't want to work with us strategically but utilize us a lot. So these are magic. If you can keep the portfolio companies, these cutting-edge, rapidly evolving, fast-moving portfolio companies, there's a couple of hundred new ones a year, if you can satisfy them or light them up scientifically and work with them and become a member of their management team, sit on the same side of the table and be their true partners, it's magic for them and if we can satisfy their needs, we can satisfy any clients' needs. So this strategy has worked so well. We have more than 10% of our annual revenue coming from the venture capital portfolio companies and while we didn't do these investments together, we're not an asset management company, we're not a venture firm, but we invested money in these -- in the venture fronts where we're LPs, and we've gotten a greater than 30% average return. So we love those returns as well. So these 3 areas, strategic M&A, strategic partnerships and our venture deals are really fueling our long-term growth. Cell and gene therapy space is really quite extraordinary. So let's just unpack the stats. With all the conversation, all the noise, only 9 drugs have been approved by the FDA. So still kind of small. About $20 billion went into cell and gene therapy last year. We expect by 2025, which is only 5 years from now that 10 to 20 drugs a year will be approved. There's almost 3,000 cell and gene therapy programs being worked on. 2/3 of those are in preclinical or Phase I. So we have an opportunity to be working on a couple of thousand of those and the preclinical stuff is strong at 30% a year, 900 of them are in the clinic. And about 200 INDs to be filed every year. So this is a juggernaut, this modality. This is eclipsing everything else in terms of investment, in terms of growth, in terms of potential, in terms of making a difference, in terms of treating diseases for unmet medical needs and definitely in terms of Charles River. We're going to support so many of these companies with our broad portfolio of capabilities in cell and gene therapy. So really, really important part of our growth. So if you look across our whole portfolio. And as I said earlier, more than 10% of our revenue is coming from this if you include Cognate. And that percentage should grow because the growth rate of cell and gene therapy work is higher than everything else we do. But not just in the new businesses like Cognate, HemaCare, Cellero and Vigene, which obviously, we love all of those direct capabilities in cell and gene therapy, in the CDMO space, in plasmid plasma DNA, in viral vectors, in providing the cells, but also in the rest of our portfolio. So in RMS, we're providing immunodeficient models. In Discovery and Safety, we're providing combo pharmacology and safety studies. Also in Safety, we're providing bioanalytical testing. In our Biologics business, we're providing analytical testing and cell banking. And in Microbial, we're providing advanced rapid cell screening techniques. So all parts of our business, our touching cell and gene therapy will increasingly -- that will increasingly be the case. So really -- we're really a premier partner and as I said earlier, if we're not -- we're certainly one of the leaders in this space if not the leader in providing these services. Another strategic imperative is driving efficiency. Driving efficiency across our whole portfolio is sort of part of our genome. We're always looking to optimize what we do. We took $50 million, $60 million, $70 million of cost out of our business every year, and we'll continue to do that. We have to optimize our cost structure. We had a dozen safety sites. We have to optimize how those all work, what's the best methodology and apply that across all of them. But yes, we're committed to 50 basis points of operating margin improvement a year beyond this year. And obviously, a lot of that's going to come by driving efficiency. And so we -- whether you're a PhD or a trained businessperson focusing on driving efficiency and improving both our gross and operating margins. Look, for our clients, everything is about speed to market. You can have 3 biotech companies working on the same target for the same indication and all developing some large molecule. The one that gets to market first will have an 80% share. The one that gets to market second will have a 20% share. The one that gets to market third will go bankrupt. So we are maniacal about speed. So if we delay them a month, a week, a day, sometimes a few hours, they can't stand it. So we have to be incredibly responsive. We reorganized our company about 3 years ago to decentralize it. So I consider every general manager of our business -- one of our businesses in all 100 above sites an owner. You run a site, you run a business, you run a collection of businesses. I consider you an owner of that business, and we expect all of our GMs to make decisions on how many people they hire, what they pay them, how they structure them as if they own a piece of the business. I want them always thinking about what does the client need, putting themselves in the shoes of the clients. And obviously, ultimately, the shoes of a patient. So if you're a person dying of cancer, and we're working on a breakthrough cancer drug and we get to market a year, a month, a week earlier and that could save your life, we have to be thinking about that every single day and we do. So everything is about speed to market. We've committed to our clients and to ourselves and to you all that we will take a year out of the drug development process, and we've already made great strides in doing that. Drugs simply don't get to market without us. When I talk to the CEOs of so many of these drug companies, including Moderna, which is one of a few companies we are allowed to talk about, when I say to Stéphane, you must feel fabulous about having the -- one of the first vaccines to treat COVID. He says, I feel great, but I want you to know I would have never gotten that vaccine to market without Charles River. And he means it. So we're pleased and proud of our -- the important role that we play in drug development, in getting more than 80% of the drugs to market and in getting all 4 of the current vaccines for COVID to market. We're going to continue to focus on transforming the way we work with greater technology. So with digitizing our enterprise. We want clients -- if you're a safety assessment client, we want you to be able to get online and say, okay, I have a reproductive toxicology study, do you do it? And the computer will say, yes, we do it. And then say, what will it cost? Give the clients an early quote and say, when can you book me in and give them a slot. And then book the study and then give the client real-time data. The way we manage the enormous amount of clients we have, where we -- enormous scalability of our business model is through this digital connectivity, through an end-to-end client experience with greater e-commerce, through yes, we have lots of great scientists and study directors and technical people for our clients to talk to. They should only talk to people that they have something that requires a sort of iterative conversation. They just need data. They just want to know how their study is doing. When their animals will arrive? When their aides will arrive? When their endotoxin test kits will arrive? You shouldn't have to call and ask somebody, that's an anachronistic way of doing it. So we're deep into our digitization initiative at Charles River. We're really, really excited about beginning to roll things out shortly. We're also very, very focused and interested on using AI, a couple of those technology deals that we have, I think we have 2 and soon to be 3, AI deals. Hopefully, that will help us learn from work we've done, design better trials and better outcomes and use machine learning and artificial intelligence to help our clients have better outcomes and to get more drugs to market. We're very, very focused and excited about utilizing technology to make us a better partner with our clients. I say this all the time to our almost 20,000 employees, we are only and all about our people. So the best technology and facilities and IP in the world doesn't get it done. It's all about having the best people in the world understanding the mission, lit up by the mission, feeling well respected, having us listen to their input, working well as teams, embracing the knowledge and the notion that where they are to service patients and to get life-saving drugs to market. So we're really focused on attracting, retaining, motivating and challenging the best people in the world, about having an inclusive environment where you can be yourself and we can embrace yourself. And that power of inclusion is really, really important. So we're working on connecting our people throughout the world and really harnessing the power of having 20,000 people working together, not being somehow disenfranchised from one another. So really, I think we have an amazing culture. I think it's very family oriented, it's very team oriented, it's very results oriented, it's very patient oriented. And no matter how many acquisitions we make, we're still able to not only maintain that culture but to enhance it. So we're really focused on our corporate citizenship initiative. If you haven't seen our corporate citizenship report, we're really proud of that, talked a lot about the things that we have done, talked a lot about how we strengthened our Board and made it more diverse. We now have -- almost 40% of our Board is female and minority represented. Talked a lot about diversity and inclusion amongst our employee base. I was a signatory to the CEO action for diversity and inclusion. Many, many of our employees are signatories personally, and we have teams of people working on this at the recruitment levels, session level and just working with each other and promoting -- furthering a culture that people can be themselves. I think it's the best way to put it. We're really committed to improving this planet that we have all destroyed. So I think every person individually has responsibility in Charles River in all 100-plus of our sites and has responsibility to do everything humanly possible to reduce our footprint to help bring this planet back. So we have a sustainability capital fund that we'll infuse money into every year. We have a commitment to reduce the greenhouse gas emissions by 50% by 2030. We made great strides towards that. We also feel very great sense of responsibility to the communities in which we live and work, can't just make money there. And yes, it's great that we pay taxes, but we need to support the people, the organizations, the educational organizations, youth organizations, STEM organizations, food banks in these communities. And so we give money to our sites to give money to the local -- to meet the local organizations that really -- that they believe are in the greatest need, and that was really magnified because of COVID. And we gave money to some organizations that would not have made it. They would have gone out of business -- or out of existence without our contribution. We feel really good about that. So focused on each other, focused on the planet, focused on the communities in which we live and work. So what are our guiding principles? We're all about science. We have 2,400 PhD and the DVM level people with advanced degrees, providing advice and council to thousands of biotech and pharma companies working on thousands of the drugs to cure so many illnesses. Our input is critical to how those studies are designed and what the outcomes are. So this is a place increasingly where great scientists can come from other organizations, often big pharma, biotech, academic or government organizations that want to be part of an enterprise that's touching almost 100% of the drugs that are approved. We're focused on the strategic hiring of the best people in the world and treating them with dignity and respect. We're focused on the greatest connectivity with our clients, increasingly digitally to have the greatest responsiveness to them and to take a year out of drug development process. We're focused on expanding and enhancing our incredible portfolio through additional M&A and strategic deals. And we're focused on continuing to build shareholder value. We believe we will once again double the size of this company and increase earnings per share over the next 5 years. So the demand continues to be as extraordinary as we've ever seen it. Given our powerful expanding portfolio, we think that demand will continue certainly for the kind of 3-year guidance that we've given you here. And I think well beyond that. We will continue to expand this portfolio in a way that distinguishes us from the competition and lights us up internally. So thanks for listening. As you can tell, I'm very enthused about this company, about what we've accomplished, what our capabilities are going forward. Now -- I would now like to turn the floor over to David Smith, our CFO, to talk to you about some of the financial aspects of our business going forward. David?

Thank you, Jim. I'll start with first quarter results for 2 reasons. First, it sets us up nicely to discuss the latest guidance and our long-term targets; and second, the results provide a solid baseline for today's discussions. Now we've seen double-digit growth in all 3 segments even when we back out the impact of COVID. And collectively, this gives us an organic growth rate of 13%. Our margins expanded, partly on the fall-through of the strong sales, giving us 170 basis points of growth, which we're clearly delighted with. And non-GAAP earnings per share grew at over 37%, which helped drive record free cash flow for our first quarter of $140 million, beating last year's record by $100 million. Now this strong performance, coupled with the mounting order books, enables us to improve our full year guidance and provide an increase that is well beyond just Q1 beat. Reported revenue guidance is now 19% to 21%, up from 16% to 18%. Organic is now 12% to 14%, up from 9% to 11%, putting us squarely into double-digit territory. And we now expect margins approaching 21%, whereas previously we stated modest improvement. Non-GAAP earnings per share is now $9.75 to $10, which implies a year-over-year growth of over 20%. And free cash flow is now at the top end of our prior range of $435 million. And this, despite CapEx increasing by $40 million to accommodate the capital needs of our recent acquisitions. In addition, I'm pleased to confirm that our second quarter has got off to a stronger start than we expected. For the full year, we now expect revenue and earnings per share growth to be at least at the high end of the guidance that I've just outlined. And our last 5 years have grown well, too. Reported revenue with compound average growth rate over 17% and earnings per share over 18%, essentially a doubling of the top and bottom lines. So Q1 full year recent history, this is all a great backdrop in which to discuss our future or strategic targets. So to the future. We're looking at a time horizon of 3.5 years to the end of 2024. We're striving for low double-digit organic revenue growth, up from the high singles, and non-GAAP earnings per share that grows faster than revenue. In respect to margin, we expect further expansion. We're now targeting approximately 22.5% for the full year 2024, and that represents a 250 basis point increase over the full year of 2020, which was our last reported full year set of results. Or looking at it after this year, where we expect to approach 21%, then we have about 50 basis points on average increase each year thereafter. It is, however, worth calling out that we don't expect it to be necessarily linear, but directionally, we feel this gives you some shape to work with. Again, as in the past, the drivers of margin expansion are DSA and corporate unallocated costs. DSA from the higher volumes, pricing and efficiencies, unallocated corporate costs from the leveraging of our scalable infrastructure, with a target to get under 5% of revenue by 2024. Clearly, the actual operating income itself, the absolute dollars, if you like, will increase in all segments, and that will help drive our earnings per share expansion. Our tax is going to be interesting with Biden reform still uncertain, both in timing, when will it be enacted and the scale, the dollar impact. We're clearly monitoring this space. And while for obvious reasons, no one can be precise, directionally, we feel, on balance, we'll probably end with a tax rate in the mid-20s. Now that's up from the low 20s we currently have. And if passed, we expect a lower earnings per share growth rate in the year of enactment, but it's hard to say at this time exactly how high the earnings per share growth would be in that year. But obviously, we'll keep you appraised as and when we learn more. Free cash flow has grown at mid-teens over the last 5 years, which we expect to remain strong based on what we've already described about the sales, the margin and the earnings per share growth targets. And clearly, in respect to CapEx, we need to feed the growth engines of the company, and we will continue to allocate capital where appropriate as we have in the past, both for legacy businesses and the newly acquired businesses. And as such, at this time, we expect CapEx to increase to about 7% of revenue. Now I won't spend too long on the specifics of our capital structure, but the approach remains unchanged. Use our bank revolver to give the owners of acquisitions the confidence that we have the funds. And periodically, depending on the market conditions, issue bonds to replenish that revolver or to get a competitive coupon rate as we did earlier this year. We still prefer leverage below 3x. And for those of you that have followed us in the past, you've seen that we've demonstrated an ability to bring our leverage down after acquisitions. And historically, over the last 5 years, we've always got leverage under 3x by the year-end. Now no promise of that going forward as it depends on the month in which we acquire a target. But at this time, we still prefer to pay down debt rather than, for instance, offset equity dilution. Strategic M&A remains our top priority, so no change there. Still prefer acquisitions that are neutral or accretive out of the gate and a return on invested capital that meets or exceeds our weighted average cost of capital in years 3 or 4. And over the last 5 years, we've seen returns averaging 200 basis points in excess of our weighted average cost of capital. So that remains encouraging. And in case you missed it, the growth from the last 5 acquisitions has the potential to provide $0.5 billion of revenues in 2024. In summary, I'll leave you with this simple table that compares and contrasts our past performance with the long-term targets that we've laid out for you today. But I will add that we've doubled our top line and bottom line over the last 5 years. And obviously, it depends on how our future acquisitions pan out, but I see no structural reasons why we can't repeat that performance in the coming years. It's certainly a target that we have our sights on, and we'll do what we can to make that a reality. Now I believe we're going over for Q&A.

Great. Thank you, David. We will now begin the Q&A. [Operator Instructions] Up first is Elizabeth Anderson with Evercore ISI.

Thank you for all this updated information. It's super helpful. I guess, maybe I have 2 main questions. So the first would be, how are you thinking about the acceleration of the new longer-term growth rates over the forecast period that you have? That would be my first question. And my second question, if you look at the individual segments and sort of take a look at what that longer-term guidance is, that even backing out the 5% corporate expenses, it does seem like there's a little bit potentially a wiggle room or conservatism in that number. If you could just please comment on that and sort of how -- what other things you would factor in there?

Okay. Go on, David. Go ahead.

Yes, so the first question was really around how might the progression of our growth rates pan over the sort of 3.5 years. Now clearly from the underlying businesses that we have, we feel comfortable that they are stepping up. So we're moving away from, if you like say, DSA, from these sort of high singles to towards the sort of 10% basis. But where we're going to really see the sort of kicking in is in manufacturing and in RMS, where the recent acquisitions that we've acquired, HemaCare, Cellero, Cognate, even the new one that we hope to close, all these have immense growth rates, 25% to 30% growth rates. So obviously, they become more meaningful as you get the compounding impact of that going out towards the year 2024. So broadly, there's 2 halves. The legacy businesses are stepping up, but the real balance is going to come when these recent acquisitions start to become more material to those growth rates. Now in terms of the question is, is our margin guidance somewhat conservative or our earnings per share guidance is somewhat conservative. Look, we still feel good about what we posted. So just to recap. The reason we're getting a stepping up in the margin is partly because you see the revenue improvement. You've seen RMS moving from low to mid, maybe to mid to high. We've seen DSA moving from high singles to approximately 10%. And we see manufacturing from low double-digit to approaching 20%. So they are meaningful changes in the revenue growth rate. And of course, we'll get the fall-through of the volume because we've got a certain amount of our [ cost to fixed ]. And then, of course, we're going to continue with efficiencies. So even if we weren't getting revenue improvement, we would still be getting some benefit from the efficiencies that we do. So we're seeing safety, for instance, moving away from integrating sort of the recent acquisitions, WIL Research, MPI and [indiscernible], much more on optimization, on quality, on customer experience. And we're seeing in that connectivity with the clients, which means helping with the improvement in the revenue as well. But you could argue there is room for further improvement, right? But I would counsel against that because we still need to invest in the business. In the past, the last 5 years up to 2020, we have 4 years at 19%, the final year came in at 20%. But we were investing in the future. We had companies which had a drag on the margin. We were moving them up towards the legacy businesses. We were investing in people. We were investing in protocols. We were investing in back office. We've been investing in IT. And we are reaping the benefits from some of those investments that we made historically. So I would make the same argument. Over the next 2 or 3 years, we will continue to invest in our business because this isn't about what the margin looks like in 2024. This is about what the margin might look like beyond 2024 as well. So as you've heard, we're looking at a sort of a 50 basis point increase, on average, over the next 3 years. That does give us room for meaningful investments in the business, which we believe will help give us benefits in the longer term as well.

The next question will be from John Kreger at William Blair.

I've got 2 that I'll just throw out. Jim, you painted a really encouraging kind of macro picture. I don't think you talked about the regulatory environment, though. Could you just elaborate on whether that's changing at all under the new leadership in Washington, in particular? We're getting a lot of questions about that. And then the second question, you mentioned machine learning. Can you just elaborate a little bit on where you think that can be deployed most effectively across your portfolio?

Sure. John, we're not seeing any changes in the regulatory environment that we anticipate would adversely impact our business, so fundamentally change it in a particular way. I think that our regulatory oversight is really quite sophisticated over a whole bunch of modalities, different agencies that we deal with, moving into our latest business, which is GMP manufacturing cell therapies. So I think the regulatory environment will be somewhere between neutral or positive to us. Machine learning is sort of the big question, right? The question is how will artificial intelligence change the way folks design preclinical trials and clinical trials, number one. Number two would be, so the connectivity between the two, so that there are better outcomes. And will we learn substantially from what we have done? We, the general drug development community and we specifically at Charles River, will we benefit from historical data that we have over a whole host of thousands and thousands of compounds? And so if you have a new drug, doesn't that inform you -- doesn't the history inform you about how the new one may perform. And the answer is likely yes. So I think over time, we're going to see some beneficial structural changes that will give very early indications of how a drug is likely to perform or either positively or negatively, I think, is a validation of those different technologies, even early on in the process, will take a while both from our clients' point of view and from the regulatory agencies. But I do think it will be part of speeding up the process and hopefully, for all of us, are getting more drugs into the market. So we're -- as I think you know, I alluded to it sort of quickly in my remarks, we're going to be placing bets within the context of our technology deals to find the most robust technology that we can both invest in, utilize and distinguish Charles River from others and also help with this journey that we're on to help the drug -- our clients take a year out of the drug development process. We want to be careful, though, about what we invest in and how much and how deep because I do think that technology is going to change rapidly. So I think several short-term goal, which we already have a couple, and we will have more, for sure, should allow us to really evaluate them real-time and see whether there are significant enhancements to not. And then assuming we have the opportunity, we're likely to acquire some of these technologies, which hopefully would be unique and give us leg up. So we're all over in terms of educating ourselves, but not all over it in terms of making a massive investment right now, which probably would be too early and tough to pick the right horse to get on.

The next question will be from Tycho Peterson of JPMorgan.

Question on cell and gene therapy. Jim, I'm wondering if you can talk what's baked in the long-term guidance in terms of percentage of revenues for that 2024 guidance from cell and gene therapy. And then how you think that's going to be split between manufacturing, discovery and safety assessment and other businesses? And then also, if you could just talk to the level of investment you think you need to make around cell and gene therapy?

Yes. So without giving you those specific numbers, Tycho, that -- those businesses will grow disproportionately faster than the rest of the franchise. So you have sort of historical and future growth rates for everything we do, and we just updated them, of course. Cell and gene therapy are already baked in there to some extent, but they're going to grow disproportionately fast and be a disproportionately larger percentage of our total revenue. So we just told you that it's somewhat greater than 10% right now. You'd have to do your own math to come up with the -- with what the number will ultimately be. But it will be a significantly more meaningful part of the portfolio and has to be because so many of new drugs that our clients are working on in the cell and gene therapy space. And so we either need to be a full gauged provider to them or not. So we've done this in a very significant way. I think both sides of the business, both the kind of the product pieces and the service piece, will be significant. And both will be -- both are already in and will continue to be in high demand. We will invest as aggressively as possible to provide -- to have sufficient capacity to accommodate clients' growth rates. So we just gave you a number if you were trying to [ dig ] CapEx a little bit, it will be 7 percentage of our revenue. Out in the outer years, we feel quite confident in our ability to manage the business and keep up with the growth rate at that level. We have to have space slightly before we need it, slightly before the clients can use it. When they give us work, we can rent out another rent space or build facilities. So we have to be able to call it right. And I would argue that, as you've seen from the guidance raises this year already, our demand is exceeding even our operating plan. So -- and we continue to believe in the growth rate of the business and we understand the clients well and the client's need for utilizing as well. So we're going to continue to have to stay ahead of the both the capacity, which would be the CapEx issue and the head count is equally, if not more, important. So high-growth driver of the company, we think both top and bottom line, and one that makes us a better provider and solution for the many needs of our client base.

We did give a number. We did 5 acquisitions, add up to about $0.5 billion in 2024. So that might be helpful.

Okay. And then, David, one follow-up on RMS margins. The path to get to high 20s there, is that all mix? Is that GEMS and kind of higher margin products? Or are there other kind of drivers for RMS?

Well, one of the drivers is the HemaCare, Cellero. Obviously, with time, as that revenue builds up, then the fixed cost will -- won't be growing as fast as that revenue growth. And therefore, you do get a fall through on that. And otherwise, it really is a question of the extra volume that we're getting in, which is true for all businesses. We're talking about a stepping up in the volume of all of our segments, and there is a fall through that helps on the margin in that respect as well. But the 2 to look at is that extra volume on the legacy business, but the real kicker will be on the new acquisitions because, obviously, with the 30% growth rates that we're talking about for those units, it doesn't take long before they're eclipsing the fixed cost that they needed to support it.

Up next is Dave Windley with Jefferies.

I think you're on mute.

Dave, you're on mute, yes.

My first question is around the comment that you made, Jim, not surprisingly, I guess, around DSA, that the demand is as good as you've ever seen it. I think the environment and the biotech funding flows suggest that. But I was wondering if you would be willing to put some exemplary numbers against that like studies booking out further number of quarters or months, price taking. Any number -- any type of metrics that you could add to that, that would put some tangibility around that demand, the size you've ever seen it.

Dave, sure, I'll try. We're booking out further than we have in years. And it depends on what kind of study and where it is. With -- in some cases, we're quarters out. And I think in a few cases, people are already talking to us about next year. So -- and if you think about where the clients are right now, incredible funding environment, a whole host of new modalities, really deep pipelines. For the big companies who used to do a lot of this work themselves and now reducing their internal infrastructure, so they actually can't depend on themselves. So they really need to depend on us, and they really need a post-relationship with us, and they really need to plan better than they used to. You've heard us say a few years that they're not the best planners in the world, some of our clients, particularly some of the large ones, because they didn't have to. They had internal capacity. We always had enough space. And I do think that, that space is filling up. And so I think it's more orderly. We have a better predictability. We have better visibility on our revenue. And we're able to really get on the same side of the table with the clients who will just tell us they've had x number of studies, and this is the most important priority and et cetera, et cetera. So without giving you specific numbers, definitely studies are booking out longer, which is great. We're very happy with the pricing that we've got. We're not going to -- as we said several years ago, we're not to give you the exact price. But definitely getting some pricing and a nice mix between specialty work and general work. And while our clients will always be interested in price, I'll never tell you that they're not, I do think that they're very interested in having a slot. They're very interested in the quality of our science and very, very much interested in our speed, particularly our smaller biotech clients who maybe have a single shot on goal. So while pricing is always an issue, it kind of feels like it's less the first thing we talk about and often are sort of second or third and fourth. And I think that's good because studies are very complicated. They're expensive to run. We're hiring -- trying to hire the best people in the world. We're filling up capacity. And so we need to be paid well for it. So it feels like the respect quotient has gone on and a greater appreciation for the role that we play. And also a real acknowledgment that there is a significant dependence on us to help them get the drugs to market.

I wanted to follow up in cell and gene therapy with a couple, if I could. There's a couple of shorter ones. One, as you move into contract manufacturing, is your point of contact at the customer the same? I mean, maybe it is because these companies are largely small and innovative, small biotechs. But is that a similar or same sales point? Or do you need a manufacturing sales team now to be promoting those capabilities? And then on BioGene, you mentioned in your comments about that, that it was a conduit to Cognate. How do you think about your end target markets in the manufacturing business? Is it cell therapy and modified or gene-modified cell therapy? Or do you really think about it as complete cell and complete gene therapy coverage or service addressing that market?

So the acquisitions that we've done in the cell and gene therapy space are benefiting substantially from both our sales organization and our access to clients. So while they may be selling it at a certain level, it could be the head of manufacturing inside the firm or if it's a small biotech company, it's only a handful of people to deal with anyway. But access to certain clients, particularly large clients, we're playing a very heavy role in that. And our biologics sales team is playing the principal role in that, who's all around the space. And so we're connecting the sales organizations of these smaller businesses that we bought. Obviously, their relationships are important as well. We just want to enhance them. And so what we've seen in almost every deal that we've done for years, Dave, even in new areas like cell and gene therapy that the confidence that clients have in us, the history that we have, the large amount of work that we do for many of them right now, kind of allocate these new businesses that we bought, makes it easy. And of course, it's all about speed for them. So obviously, with Cognate and Vigene, which we don't even own yet, we'll be working through sort of the subtleties of the sales interface. But I think it's going to work quite well. We think of kind of the Vigene, Cognate businesses principally on the sort of product pieces that -- Vigene is the U.S. enterprise, which is of a -- has large viral vector capability and plasmid DNA capability, and we have the same capability in Europe with Cognate. So when I said conduit, I was -- I meant mostly geographically because there's a lot of clients, it's all about proximity. So I think about these businesses that we are already and will continue to be a major player in cell therapy, particularly gene-modified cell therapies. From a pure manufacturing point of view, I'd say probably our gene therapy, straight-up gene therapy manufacturing is more about the elements of it and less about actually doing broad gauged manufacturing for our clients there, although we may move in that direction. So I have no doubt that we will be, a, if not the principal player in cell therapy and a meaningful player in aspects of gene therapy maybe is a simple way to think about it. And we have a pretty good run rate with these assets, Dave, both geographically, client base, history, deep science and a broad footprint. We hope to continue to add to them through more M&A to the extent that they're both available, and they fit. But obviously, we'll continue to have aggressive investments to keep up with the market demand.

Our next question is from Ricky Goldwasser at Morgan Stanley.

So a couple of follow-up questions. First of all, clearly, M&A has been a key component of the strategy over the last decade. When we think about the long-term guide to 2024, you gave us consolidated guide, but how should we frame the potential contribution from future M&A to sort of those long-term goals?

So those numbers are given with the -- without adding any assumptions for M&A because it's impossible to do that. We know what the next 5 deals are that we'd like to do. It doesn't mean any of them will get done. It doesn't mean that [ they'll either ] be available, that will prevail or that we'll like the asset when we get into it. But kind of strategically, we sort of mapped out -- sort of we've mapped out the drug development process and what facets of it we want to participate in. And with a couple of exceptions, I think we're doing well in filling in whatever gaps we may have had and expanding them. So if we did nothing further from an M&A point of view, which will not be the case, if we did nothing further, we think we can get the growth rates that we've just given you, the strategic -- smaller strategic deals that we're doing, we certainly hope that some meaningful proportion of those, I'll make it up, at least 1/3 of those, I would say, will become acquisitions because the technologies, at least, at the outset, seem really, really beneficial and important for us to have in the portfolio. And those will be relatively small checks like Distributed Bio, but with very high-growth rates, usually IP and some literally technology that no one else in the world has. So we certainly hope that they will be. And we hope to do more, as I said a moment ago, from an M&A point of view in cell and gene therapy, specifically in multiple aspects of discovery to shore certain aspects, laboratory aspects of our safety assessment business. We have a couple of things in RMS. Maybe some things geographically. And so smaller sort of niche moves in microbial and biologics. So we continue to be active kind of all the time, including now. As I think you all know, most of the deals that we have made in the last decade, they've been private equity owned. So they're always for sale. So it's just a matter of timing and price. And so we know that we at least have a shot at these companies, the ones that fit. And I guess the last thing I would say, just because you're asking kind of about size of growth rate, is that we would never do anything artificially. I hope you all know that. So we -- even though we threw out a number in our last investor conference that we'd add $1 billion of revenue through M&A, and we've already added $0.5 billion, and I do think the $1 billion is eminently doable, we would never just force that just to make those targets because we said so. So we're not interested in being bigger just for the sake of being bigger. We're interested in building out the portfolio. And I continue to believe every single day that the portfolio is a very powerful one and is the principal distinguishing feature of being Charles River and every other competitor we have and is what that gets the attention of the client base. So continuing to add to it, strengthening it, both geographically, just from a depth point of view and a scientific rigor point of view, is really critical. And of course, as you know, the technology changes so rapidly. If I think about the dozen technology deals that we've done, I don't know, most of those companies didn't even exist 3 years ago. And 2 years from now, there will be another, I don't know, 25 or so that we will look at and maybe do. So figuring out what to buy from a technology point of view is not trivial. We do think we have a good methodology to do that though.

And just to give you some math. We've called out today that our earnings per share growth would be higher than the revenue growth, and the revenue growth we called out at low double digit. But historically, we've done earnings per share growth the 18% to 19% category. So there is a step change if we were able to repeat M&A in the next few years in a similar fashion to the way we've done historically, that there would be a pop on the earnings per share.

Yes, that's very helpful in terms of framing it. And then thinking about second quarter guide. I mean, clearly, you've been bullish since the beginning of the year and yet, here we are, what, about 1.5 months after you gave guidance and you're upping guidance again. What specific areas are doing better than where you expected them to come in?

Go for it.

It's across the organization. I mean, you looked at the guidance we've given, either historically, a little week ago, or the long-term guidance we're giving, that guidance is across all of the segments. It's not as if we have one segment that is driving our long-term guidance. Broadly, we're sitting in a beautiful position where all of our segments are performing well. And we're delighted to be able to report that. But you're right, we reported only a few weeks ago a sort of guidance for Q2. And here, we are, we've not even closed the May book, it's the 27th of May. So we haven't seen the de facto May numbers. But we do know from talking with the senior team and to the organization that there's a confidence there that, coupled with our April results, we wanted to signal to you today that we felt that we would be surpassing the Q2 guidance and try to help factor that into some color as to what the full year would do. But really today isn't about Q2. Today is about the long-term guidance. But to answer your question, we're sitting in a comfortable position in all of the segments.

And then one last question. Jim, in your discussion early on, you talked a lot about talent development in the organization. We're hearing a lot about how tight the labor market is and clearly, there's a lot of demand in the industry. So how do you think about that ability to sort of to find the right people, to attract them, to hire them and retain? And when we think about sort of kind of like limiting factors to growth, is that where you see kind of like the most -- the challenge to future growth opportunities?

Yes, we're hiring a lot of people, which is a commentary on the demand that we have right now. We're pleased to be doing that, and we're doing that as aggressively and thoughtfully as possible. We have a lot of people that are unskilled labor and choose to come here versus Walmart. And I think we have a leg up because people do care about the mission of the company. And so we obviously have a better mission. No offense to Walmart. But we're actively making sure that our pay levels are appropriate and that we're explaining our jobs well and that we have panels to interview people to make sure that we have a more diverse workplace. And also that we -- people have pretty clear career growth goals that they have some control over. I think we're doing an increasingly better job at that. And so we want us to stay slightly ahead of the demand because a lot of those unskilled labor jobs still require fair amounts of training. So while you hire somebody, they may not be contributing for several months. So it's an always, always, and that's a good place to be. I think we're doing fine in every geographical locale is a different story. I would say in the senior scientific ranks, and we just talked about 2,400 PhD level people, that is, I won't use the word easy, but it's increasingly -- we're doing an increasingly better job at recruiting those people because it's a place where great scientists now want to be. And so if you want to participate in touching 80% of the drugs that get to market and working on those and having an input and having a diverse client conversations and working over diverse modalities in multiple therapeutic areas, I think it's a much heavier proposition than some of the big pharma companies or biotech companies. And so we're recruiting a lot of people directly out of big pharma and biotech who, for whatever reason, don't want to be there anymore. So -- and we have to have those people so then when our clients look at us, look at our staff, they see deep scientific capability, and that gives them confidence. So I think we're doing fine. It's the principal rate limiting factor. It's a much greater rate limiting factor than capacity. Capacity is just money and planning, okay? So -- and you have to build the buildings 12 or 18, sometimes 24 months in advance. Headcount is more immediate, although we do have to stay ahead of it.

Up next is Derik De Bruin with Bank of America.

Jim, for a number of years, basically since we began covering the company in early 2000s, the technological threat to RMS has always been out there in terms of having new technologies replace some of the animal studies that are out there that are going on. There's -- as we have done a lot of IPOs lately, there's a lot of technology out there, where sort of are we in technological enhancements to that whole process of using animals? And it's a broader preclinical question in thinking about how technology is sort of impacting that. And this is obviously going to lead to an M&A questions. Like are there opportunities out there for you to enhance that?

Yes, nice to see you, Derik. There's a fair amount of technology out there, and we both seek those conversations out and people do seek us out because, obviously, we have the greatest market potential penetration for the technology. There's a lot of 3D modeling stuff and, obviously, computerization and [ all these additional ] -- all of those technologies. And I would say that anecdotally, they're interesting. Anecdotally, they seem scientifically beneficial but at the moment with relatively limited application. And so what we think we'll see over -- so we'll place some bets, going back to the technology deals that -- we'll place the bets in this area as for sure, we already have placed some. And the extent to which these technologies actually are beneficial of augmenting what we do or replacements for certain aspects of what we do, take the earlier in the process kind of before we get to GLP trials. If the clients are embracing them and validating them and their regulatory agencies are accepting them or if it's earlier on before the stuff is regulated, but is answering some question that will either save time or preempt them continuing to develop the drug or before you go into animals, I do think that the stuff will have a role. I can't tell you how many years we've been engaging with those companies and how many interesting technologies we've seen, that looked really powerful and it's really kind of sexy cutting-edge science, but just practical application, some of that's been limited. So we're going to stay close to it. We're going to make -- place some bets. We certainly will do some M&A in areas where we think it's a augmentative or even similar -- or replacement for some of the early work. The extent to which those technologies actually speed up the process in getting our clients' answers on how the drug is likely to do in preclinical trials, those will obviously be very important technologies. As we go back to the earlier question, certainly, AI and machine learning will have a role in all of this as well in addition to kind of the 3D technology. So watching it carefully, placing some bets, certainly open to it. The extent to which these technologies work, we do want to participate.

So I had a follow-on to that one. I mean, the last few years, all these companies -- these technology-enabled drug development companies and have been coming out and basically saying, we're going to have better molecules, generate less tox issues. Have you actually seen that in the number of molecules you're looking at? I mean, has the quality of the pipeline has gotten better over the last few years as some of these newer technologies have sort of been implemented there? I mean it's a question like how successful are these companies at really sort of like pushing development.

Yes. I don't think there's a -- we're seeing a fundamental difference yet in the quality of them. I still think it's the sheer number of drugs that get to market or perhaps, putting it the other way, not getting to market is still quite haphazard. And I don't think we have fundamental understanding yet that's going to accelerate the numbers of drugs that get to market or improve the hit rate in preclinical. What we do have is a larger number of molecules to work on in a whole bunch of new modalities. And I guess if you look at the fact that there were more drugs approved last year than the prior year, that is beneficial. But I think it was 53 or 57, and that should be 157 or 257. So it still seems like we all can do a better job, both understanding these drugs earlier on and either killing them or investing more aggressively in them. So I don't think there's a discernible difference yet.

The next question is from Erin Wright at Crédit Suisse.

So first, you mentioned that it was the 50% pull-through from discovery. Will that accelerate going forward, in your view? Do you anticipate a meaningful paradigm shift on the back of COVID-related dynamics on that front?

Well, we hope it continues. There's no reason it won't, and we certainly hope it accelerates. I mean a little of that and it's impossible to quantify. Definitely some of that was COVID-related, the work that would have been done internally, let's say, for bigger pharma and biotech companies or with one of our competitors that was unable, for whatever reason, to perform. We did -- it did instigate more outsourcing, and we're pleased with that. And I do think that with those clients, that will continue, and that's probably a permanent shift. It's illogical -- and I understand that I'm looking through the Charles River lens, but I'll say it anyway. It's illogical to us that a company with whom we did first rate discovery work, late-stage discovery work for them with a molecule that looked promising, that was progressing to the point where we knew potentially more than the client about the molecule but certainly as much, that they would then go somewhere else, it's just -- it's illogical. And so there will always be reasons. So we're full. They think we're too expensive. There could be a big pharma company who wants to do it themselves. But I would say at the margin, because everybody is interested in speed to market, that there's a logical rationale for them to continue to work with us. It's a clean handoff. Our discovery folks can educate them, the safety folks. And I think it's a better outcome. And I think that's the reason why you've seen so much consolidation in preclinical studies, a lot of which we have done. And we will have competitors that will do the same thing. So I think that number should continue to increase. I think that the pull-through should continue to be powerful. And then clients who used to use us only for safety are now using us for discovery and never even thought about using an external resource for discovery. And certainly, smaller companies that have no internal capability for which we do successful discovery work, increasingly, they will stay with us.

And just one quick follow-up on the DSA segment as well. That does seem to be a big component of the margin expansion story over the next few years as well. How much of that is latent synergy opportunity associated with some of the larger transactions over the past several years versus some underlying operational efficiency initiatives across that segment? It may be too hard to parse out at this point post some of those larger transactions.

Yes, you can't break it out. I do think that overall scale, I mean, the margins have improved materially in the discovery space, for instance, and that's because we finally have reached significant scale and scientific excellence and geographic dispersion that we're really getting a lot uptake from clients now, and the methodology from efficiency point of view has improved. Now we've also bought some things where the price points and the margins are higher. So that's been terrific. Safety just continues to be a, for years now, [ importantly ], march towards driving efficiency, the digitization of the safety business will drive more efficiency, better margins. We are getting better pricing and a better mix component as well. So -- and of course, we have some -- to your question, we have a lot of large relationships with a lot of clients. And I think sometimes the scale of that is beneficial from a margin point of view. So DSA, as David pointed out earlier, is definitely going to be the principal area to drive a lot of that 250 bp improvement that we talked about over the next 3 years.

Yes. It's worth adding that, historically, discovery was a drag on the margin to DSA, but has really matured. It's no longer the drag. We're hitting up on all bases on across just discovery and safety assessment.

Great. And we have time for 1 or 2 more questions in this portion of the Q&A. Next is Dan Brennan with UBS.

I wanted to ask the first question on cell and gene therapy. Obviously, we're going to hear a lot more about it in the coming presentation. But I'm wondering, Jim, just how would you characterize the positioning today of Cognate and Vigene within the respective markets' share gainers? Just anything you can help us on that front. And again, we're going to learn more. Then, b, related to cell and gene therapy. Like what are the biggest, [ not holes ], but what are the biggest areas that we should be thinking about as we move forward over the next kind of 3 years within your business planning, where we could see you make incremental investments, either organically or inorganically?

Yes. I would say that Cognate is already a meaningful player in the cell therapy manufacturing space. It's pretty early days for cell therapy manufacturing. And I think there are -- this enormous demand, significant opportunity. And while some clients are obviously bringing it in house, I don't think that's something they want to do. I don't think they want to undertake the expense or the loss of time in doing that. So I think we're going to see [ enormous ] demand both on the pure manufacturing side and also providing the tools, the plasmid DNA and viral vectors. So we will -- are and will continue to invest aggressively in capacity. We have to stay ahead of that. We -- Cognate's work is principally in the clinical trial domain right now. Obviously, some of those clients will get to commercialization even though there's only 9 drugs that have been approved. So far, we're going to see more every year. On the M&A side, we would be pleased and are interested in more of same at a minimum, more capacity for manufacturing, more product capability, more geographic expansion as well. It's -- I do think we're being close to the clients. We've seen this in safety and discovery. We see it in all of our businesses. All things being equal, it is always a preference. And then you have to think about our cell and gene therapy assets, specifically ones we bought over the last 18 months, in context with the rest of the Charles River portfolio. so While there are a couple of companies that are probably the same size or larger on the cell therapy manufacturing space and definitely some that are larger in plasmid manufacturing, if you take the whole portfolio, the RMS capability, the safety and discovery capabilities and biologics that you roll that up to what we told you is more than 10% of our sales, we have a very large footprint already. All of those pieces -- parts and pieces will be brought disproportionately fast. So if we did nothing further from an M&A point of view, we'll have a very large business in 5 years that's cell and gene therapy driven. We intend to do some more M&A there because I do think the opportunity to grab more share of this business with clients early on, typically ones that are kind of thinking about what, if anything, they want to do internally is critically important. So I've never quite seen a modality that sort of come on the scene this quickly with this much investment, which these many molecules, with this much opportunity. So as expansive as the portfolio can be, it is going to be necessary and beneficial to support the client base.

Great. And then maybe as a follow-up, just kind of staying in cell and gene therapy. So the manufacturing margin guidance kind of remain consistent. And I know you commented it's due to maybe the lower margins of the deals. So can you just give us a sense of just -- I mean I should have looked this up, but kind of where are those margins today? And kind of what's sort of assumed in this 3-year planning process? And what do you think they can eventually get to given the growth that you're expecting?

Want to try that, David?

Yes. So some of that, we declared. So we said that the Cognate margin is a drag on manufacturing. That's why you're seeing it posting mid-30s when actually without Cognate, we're doing better than mid-30s. So it is a drag. But the margins are not that dissimilar to total Charles River because you're not seeing a bit of an impact to the bottom line and partly because it's relatively small today. But of course, with the growth rates that we expect to see from Cognate, that will become a more meaningful part not only of manufacturing but for Charles River as a whole. But other than that, we haven't broken out the margins within that statement I've just given you nor have we declared what sort of margins we expected to get to I mean partly because we've only owned the company for a few months anyway. And we don't normally call out where we think some of the margins will go to on companies like that. So overall, yes, I mean, it's a drag on the manufacturing margin. Mid-30s still is a healthy margin for that segment, and we would expect the margins in Cognate, et cetera, to improve as we get that revenue. And of course, the fixed costs won't be high, as I said earlier in the call.

Great. And then just a really quick one. On Q2, you basically said that the results would be ahead of what your guidance was. You didn't give any frame of reference in terms of the magnitude of that upside right now in terms of the -- whether the organic growth and/or the earnings.

No. We've just tried to hint that. If you take the guidance that we have given, there will be a modest increase against that for Q2, but we haven't given more color on that. What we're trying to do is signal that the full year will be at the top end or maybe even better of the guidance ranges that we've given. And obviously, we'll provide more color when we have another 2 months' worth of data when we come to speak to you next at the earnings call about the full year. But at this point, we wanted to signal that we're likely to be at least at the top end of the full year guidance. And we didn't want to surprise you with that in literally August.

And the final question for this session will come from Patrick Donnelly at Citi Research.

Jim, maybe just on RMS. That bumped to mid- to high single-digit growth. Can you just talk about how much of that is share gains you saw during pandemic that are going to prove durable, areas like China being obviously higher growth? Just what you're seeing in that market. Obviously, it was a lower growth market for you guys for a little while. Nice to see this uptick. I just want to better understand that piece.

Sure. So we're really thrilled with the renaissance of our RMS business. We have that escalated growth rates both on the top and the bottom line. We have some significant parts of that business where we are, for sure, taking share, and there is a fair amount of de novo business. So we're seeing it in our genetically engineered models Business for sure. We're seeing it in our Insourcing Solutions business for sure. We've got our small CRADL business, a high-growth, high-margin business in South San Francisco and Cambridge, Mass, which not only is a nice business in and of itself but is a feeder to other parts of RMS and other parts of the company. China is a big growth area for us. And as I said earlier, we have about 35% share and should have a significantly higher share going forward just given the competitive dynamics, the strength of our franchise there and our continued investments. We continue to get price and a really interesting mix in our sort of legacy, lower growth geographies, and that will continue to reproduce their own animals. So they would -- and be getting increasingly more sophisticated animal models with higher ASPs, so definitely taking share in China. GEMS, our IS business, for sure, we also have, obviously, our cell product companies, which are extremely high-growth, limited competitive dynamics. And without those companies, there is no cell therapy work period. So great growth dynamics as well. So you roll that up. We're quite confident that we'll meet these new growth levels to this business, which we haven't seen -- and I don't even know how long, certainly in over a decade, and we should have, as we said, operating margins, which are in the very high 20s.

Okay. And then just a quick follow-up. You touched on the synergies between Discovery and Safety Assessment a couple of questions ago. Can you just expand a bit more on the traction you're seeing between there? Any metrics you look at internally in terms of clients that previously would not look at you that are now kind of using you due to the expanded capabilities you have?

It's all about -- there's several things. So if you look at discovery, it's been about what clients think discovery is. So the -- and the early knee-jerk reaction used to be, yes, we do discovery. Why would we ever talk to you about it? Then you get to explain what it is. Then you have years of building out the CNS franchise and the cancer franchise and all the other attributes that we have, large molecule, small molecule discovery. So it's exactly -- it has very similar dynamics to the growth trajectory of the safety assessment business, which is that it's about not wanting or having the ability or desire to spend the money to do it themselves. Depending on companies like us and comfortably depending on companies like us, even big plants used to do it themselves. And as we said for years, we just need to reach critical mass. We need to get the strategy out there in the marketplace. I think we've done that successfully. We will disproportionately add to our discovery franchise through M&A. So that will continue to grow both in terms of scale but also in terms of scientific distinction. So we're going to be able to continue to garner more work from that particularly as the word continues to get out that the quality of our science is really first-rate. So very excited about discovery.

Great. Thank you. And now we will move on to Daniel Smith, who will provide an overview of cell and gene therapies. Thanks.

Good morning. My name is Daniel Smith. And I'm the Executive Director for Charles River for the global cell and gene therapy portfolio. Cell and gene therapies are evolving as the next-generation therapeutic modalities for different diseases. Today, I will provide an overview of the underpinning science and technology pertaining to cell and gene therapy. It has been over 30 years since scientists came up with the concept of cell and gene therapy suggesting that for certain indications, these types of innovative therapies could provide long-lasting therapeutic effect and even potential cures to the affected patients. Cell and gene therapies are now starting to deliver on their potential in broad disease areas, including immunodeficiencies, monogenetic diseases and immuno-oncology. As previously highlighted by Jim Foster, the cell and gene therapy market is growing at an exceptional rate, offering tremendous growth opportunities. We are, in fact, living in a golden age of biotechnology, standing at an inflection point in the development and commercialization of advanced innovative therapies, enabling us to address the most fundamental of human concerns, how to live longer, healthier lives free of disease. Underpinned by groundbreaking scientific innovations, cell and gene therapies are highly advanced biological products that are being developed for the treatment of chronic, rare and genetic diseases. Cell and gene therapy products are classified as advanced therapeutic medicinal products, ATMPs. ATMPs include autologous and allogeneic cell-based therapies, gene therapies and in combination, genetically modified cell therapies such as the chimeric antigen receptor, CAR, T cell therapies and CAR-NK therapies. As with all medicines, ATMPs are subjected to stringent preclinical testing in a range of clinical trials involving small groups of patients. Cell therapy is the delivery of live, intact cells to a patient to eradicate or relieve the burden of disease. Starting cells are taken from either the patients themselves, autologous cell therapy; or healthy donors, allogeneic cell therapy, to treat disease. At present, many cell therapies are based on the autologous approach. However, the landscape is moving towards the development of allogeneic cell therapy. On the left side of this slide is an example of an allogeneic cell therapy for Type 1 diabetes. Here, stem cells are removed and isolated from a donor. The cells are matured into insulin-producing specialized cells outside of the body then transplanted into a patient's pancreas to correct for the disease. Certain cell therapies may also involve genetically altering the cell. On the right of the slide is an example of an autologous genetically modified cell therapy for an oncology indication. Here, the patient's own T cells are isolated from the blood. The T cells are genetically engineered to detect and destroy tumor cells. Following expansion, the modified T cells are infused back into the patient. This is the basis for immuno-oncology using CAR-T cell therapy. The basic premise for gene therapy is to modify, inactivate or introduce new components to the genetic makeup of cells in order to alleviate a disease. By altering the DNA that is present in a cell, the protein or groups of proteins that are encoded by that DNA are also altered. Gene therapy may involve adding a wild-type copy of a gene, gene augmentation. It may reduce the levels of a dysfunctional protein that may be causing a disease in gene suppression or altering a mutated gene to a wild-type gene, gene editing. Gene therapy treatment may take place outside of the body, ex vivo; or inside the body, in vivo. To get the gene into the center of the cells, different types of delivery vectors can be used. This slide shows the different types of ATMPs that are commonly used for cell and gene therapy. All ATMPs are highly complex biological molecules or living cells produced through various multistep manufacturing processes. For gene therapy, there are 2 main classes. Those that use recombinant viruses, termed viral vectors; and those that use naked DNA or DNA complexes, nonviral methods. For cell therapy, many different types of cells can be utilized, isolated from patients, autologous; or healthy donors, allogeneic. Certain cell therapies may involve genetically altering the call. Let's take a closer look at the types of ATMP products and an overview of their production. First, there are the non-viral gene therapy products. These are typically circular pieces of DNA called plasmids that carry the gene of interest for the therapy. They are produced in bacterial hosts and purified to remove unwanted impurities. They can be delivered in naked form or in an encapsulated or complex form. Second are the viral vector gene therapy products. Here, viruses have been modified to carry the gene of interest and not to cause disease when used in people. They can be made by transferring the instructions for their production into industrial cell lines using plasmids. These cells then act as factories making the viral vector. The viral vectors are purified to a level sufficient for use in patients. Currently, there are 3 FDA-approved viral vector gene therapies on the market. The clinical development pipeline is strong in all phases and contains both nonviral and viral-vector-based gene therapy ATMPs. Now let's turn our attention to cell therapy, specifically autologous cell therapy, and the example here is a gene-modified cell therapy such as a CAR-T cell therapy. These products have complex health care, logistical and manufacturing supply chains that all require coordination and control. Blood is collected from a patient at a clinical site and then transported to a manufacturing site. Here, the T cells are isolated and expanded. These T cells are then modified using a viral vector to introduce the chimeric antigen receptor gene into the T cell. The resulting CAR-T cells are then purified and expanded. The product is then shipped back to the clinical site for infusion into the same patient. Currently, there are 5 approved FDA autologous gene-modified cell therapies, all of which are based around the CAR-T cell therapy approach. There is also 1 autologous cell therapy product. Again, the clinical pipeline is very strong for these types of indications and modalities, with 70% of the products in development classified as gene-modified cell therapies. As we have seen, the first cell therapy ATMPs were developed as autologous products. However, from a manufacturing and marketing perspective, allogeneic products are preferable. They enable the manufacture of off-the-shelf products and reduce the bespoke manufacturing cost burden as well as simplifying the supply chain. For allogeneic products, cells are collected from healthy donors. They are still transported to the manufacturing site, where they are isolated and expanded. Here, once again, they can be genetically modified or matured into various cell types. These universal cells can then be purified, banked and, importantly, stored until required for use. The allogeneic product can then be shipped to different clinical sites for use with different patients. As of today, there are no FDA-approved allogeneic cell therapies. However, there are 18 active Phase III trials ongoing that use allogeneic cells. The allogeneic clinical development pipeline, again, is very strong for both pure-play and gene-modified allogeneic cell therapies. Cell and gene therapy holds the promise to do what has never been done before, help people live longer, healthier lives free of disease. The journey from discovery through preclinical and clinical development for cell and gene therapies is fundamentally different and more complex than traditional medicines. There are multiple types of cell and gene therapies. Some ATMPs are individualized to a single patient while others apply to a group. Some leverage human material and others do not. Some will be engineered ex vivo and others in vivo. Here at Charles River, with our innovative science and unique range of services from discovery, research, safety assessment, biologics testing and now ATMP production, we can be an integral part of the cell and gene therapy revolution by being the partner of choice for our clients, helping turn their discoveries into therapeutic realities. Thank you for listening, and Birgit Girshick will provide an overview of our vision in the cell and gene therapy space and also discuss our DSA segment.

Thanks, Dan. Good morning. My name is Birgit Girshick. I'm the Executive Vice President of Discovery, Safety and Biologic Solutions. Following Dan's great summary of cell and gene therapy, please allow me to provide you with an overview of Charles River's portfolio supporting cell and gene therapy, including a deeper dive into the cell and gene therapy offering in our Discovery and Safety Assessment business. Lastly, I will update you on our continuing efforts to accelerate our digital technologies. It is our vision to be the preferred partner for cell and gene therapy innovators worldwide. We are achieving this by providing convenient, fast and high-quality support to our clients, utilizing our comprehensive portfolio and best-in-class science and technology. Just like for other modalities, we are on the forefront of collaborating with clients and partners to enable the next generation of cell and gene therapy. The advancements we're seeing in cell and gene therapy are fulfilling the promise of personalized medicine and is driving the accelerated growth of this modality compared to others. Cell and gene therapy is now approximately 11% of the pharmaceutical pipeline and growing rapidly with a CAGR of over 25%. About half of drug programs are being developed in the U.S., which provides us a strong and growing market for our services here. The challenges the industry is facing are the need for speed, safety, reliability and cost management, driven by small patient numbers, inherently variable manufacturing processes, and technology challenges scaling up to larger batch sizes. Our business model provides critical elements in resolving our clients' challenges and helping them to succeed. Our integrated comprehensive portfolio is taking complexity out of our clients' drug development efforts and supply chain. Our reputation for deep science and regulatory compliance as well as our broad geographic coverage gives our clients the confidence that we are a reliable partner for their programs. We are working closely with our clients and partner relationships to further innovate and ultimately address inherent development challenges. Charles River supports clients in all areas of cell and gene therapy drug development from product characterization and development all the way to manufacturing and release. Our DSA organization supports the nonclinical development through IND approval. Our biologics, cell supply and CDMO businesses are supporting process development, clinical to commercial manufacturing, and testing. Together, our businesses are providing our clients with an integrated solution, which is a powerful business model. Our cell and gene therapy strategy was built with the client and patient in mind. We have a team of highly experienced cell and gene therapy scientists, engineers and regulatory professionals to guide and advise our clients. Our client journey continues to become easier to use. We are achieving this by utilizing digital technologies, scientific expertise, program management and data analytics. Our portfolio speaks for itself and is unmatched in the industry, providing a one-stop shop for our clients. This certainly includes our market-leading cell therapy supply, which is cells, media and reagents, as tools for process development and scale up. We will continue to enhance our capabilities and global footprint organically through acquisition and partnerships to driving greater efficiencies for our clients and differentiate us from our competition. Cell and gene therapy is an increasingly important modality in our DSA business. To remind you, Discovery and Safety Assessment is a leading nonclinical contract research organization, holding the #1 market position for early-stage CROs. We are employing roughly 2,000 PhDs or equivalently educated scientists that support our clients in their efforts and provide them deep scientific expertise and wide-ranging experiences. We believe that our safety assessment business maintains approximately 33% market share. We are proud that our scientists have supported and generated over 400 patents for our clients for new technologies and drugs and have generated 85 clinical candidates, all novel molecules, since 1999. DSA is maintaining approximately 10% revenue growth, which is also our 3-year target and outlook. The early-stage market has considerable market size, good market growth and growing opportunities through increased outsourcing. We estimate the discovery market to be between $5 billion and $6 billion with low double-digit growth and a still limited 25% outsourcing penetration, which we believe will accelerate over the next years, providing additional opportunities. Our discovery organization is a unique CRO, offering clients a single source for services across the discovery spectrum and integrates chemistry, in vitro and in vivo capabilities. We are continuing to expand our capabilities through M&A, strategic partnerships and internal investment. Just recently, we acquired Distributed Bio and Retrogenix. Distributed Bio is a next-generation antibody discovery company. This acquisition provides Charles River premier large molecule discovery platform with an end-to-end solution for therapeutic antibody discovery and development. Distributed Bio's antibody libraries and integrated antibody optimization technologies expedite the antibody discovery process by several months. The library was designed with 76 billion fully human antibodies and, because of its diversity, can generate hundreds to thousands unique hits against every one of the antigens in our pipeline. Retrogenix is an early-stage CRO providing specialized bioanalytical services utilizing its proprietary cell microarray technology. This technology is used for target receptor identification, off-target profiling and target deconvolution on a wide range of novel therapeutics, including biologic cell therapies and small molecules. It's also a premier platform for off-target screening for preclinical safety issuance in CAR-T cell therapies, providing our clients with another solution for their complex development efforts. We estimate the outsourced market for safety assessment to be between $4.5 billion and $5 billion, with mid- to high single-digit growth and a more mature outsourcing penetration of 60%. Charles River is the global leader in both regulated and nonregulated safety assessment services, with services such as efficacy studies, general tox, specialty tox and bioanalytical services. The acquisitions in recent years of Citoxlab, MPI and WIL have truly solidified our scientific capabilities and global scale and are providing us with an unmatched capability and capacity. I mentioned earlier that cell and gene therapy is an increasingly important modality for our DSA business. In 2020 alone, we have conducted over 900 cell and gene therapy studies, deepening our expertise in this field. We see meaningful growth potential with approximately 2/3 of cell and gene therapy R&D programs currently in the preclinical phase. Preclinical testing requirements vary by molecule. Gene therapies require complex specialty programs. Gene-modified cell therapies, for example, T cell therapies, typically require a nonclinical program involving combo efficacy and safety studies. Regenerative medicine cell therapy programs vary by therapeutic area and can be quite complex. On this slide, you see the translationally focused approach of our portfolio as well as the pull-through of drug programs from early stage into our cell supply, biologics and CDMO organization, which you will be introduced to by my colleagues later. We have and we will continue to provide even more value for our clients and, at the same time, driving revenue and OI improvement by strengthening the 4 pillars of our strategy. The first pillar is scientific expertise. We are investing organically through M&A and partnerships to obtain access to new technologies and expertise to further accelerate pathways to go or no-go decisions. The second pillar is our digital strategy that will allow us to provide enhanced data analytics and self-service options for our clients. I will talk about our digital efforts a little bit later. The third pillar is operational excellence. This has been a strong focus within Charles River for years and will continue to be going forward. We're doubling down in this area to drive speed for our clients as well as continued margin improvement. Last but not least remains our focus on our people, which are the cornerstone of our business and our success. We're hiring and developing the best talent in the industry. Before I hand over to my colleagues, I would like to touch on our digital technology efforts. We continue to build a best-in-class outsourcing experience through digitalization of data, data analytics and enhancing self-service options for our clients, including real-time access to data. We are a data company, and the faster and better we can provide data, the more successful our clients will be plus it drives competitiveness and efficiencies for us. Specific areas of emphasis are implementing and upgrading best-in-class technologies with highest priority on cybersecurity to provide us and our clients a secure and scalable infrastructure to work on. Our digital progress is accelerating rapidly as we continue to hire the best digital talent anywhere out there, using agile methodologies and actively creating a culture of learning and problem-solving. We are creating scientific and operational efficiencies by leveraging our data for insights. We're also accelerating drug development by continuing to provide our clients with more effective and innovative means to engage and to reduce white space. It is our goal to reduce the drug development time line by 1 year. Up next, Kerstin will discuss our Biologics Testing Solutions business.

Thank you, Birgit. Hello, and good morning, everyone. My name is Kerstin Dolph, and I'm overseeing our Biologics Testing Solutions business, really excited to be here today. We are a premier CRO testing provider, and there are a few things that I'm particularly proud of that I wanted to highlight for you today. The first one is that we have been seeing robust revenue growth, exceeding 20% for the past several years. And this is mainly due to the exploding cell and gene therapy market. And over this past year, COVID vaccine testing has been another contributing factor. The addressable market matching our current testing portfolio is between $1.8 billion and $2 billion, and we are one of the leading CROs in the space. You have already heard a little bit of our recent acquisition of Cognate BioServices. And this is something that I'm personally really excited about. There are significant synergies with the Biologics Testing Solutions business, and I will be highlighting these in more detail during my presentation. A very high-level summary of our testing services is that we're providing quality control and safety testing for biologics and biosimilars throughout the development process all the way through commercialization. I would categorize our businesses into 4 different areas. The first one is that we provide product and genetic characterization services to generate identity, purity and potency data. And this work requires quite advanced analytical techniques depending on the nature of the protein that we're working with. A large piece of the biosafety and clearance testing is represented by viral clearance studies. And these studies are basically done to audit the manufacturing process itself and to make sure certain viruses or agents have been sufficiently inactivated or removed. So here, we're testing the actual manufacturing process and not the product. And these viral clearance studies play an important role in establishing the safety of biological products. Bioactivity and potency testing is used to test for potency and efficacy of products, and this is often a requirement for regulatory submission. And then lastly, we also provide direct manufacturing support with GMP-compliant master cell banking, cell line characterization and cell bank testing. And to give you some additional information here, a fully characterized master cell bank is the ultimate source material for the production of any recombinants, vaccines and cell and gene therapy products. Now a big revenue driver for us is lot release testing, which is really spanning across multiple areas because the release testing is the final safety and consistency evaluation of a product. It requires very comprehensive testing across our entire service portfolio, and it really brings all of our service offerings nicely together. We are one of the few providers that can really accommodate all different aspects of release testing. In general, the market is very fragmented with a lot of small competitors in the field, and most of them are lacking the full testing capabilities. The top 5 biologics testing providers, so that includes Charles River, are representing approximately 40% of the total market. When we're looking at our market sector opportunity, we like to segregate the market sector into 3 different manufacturing phases. The first one is the early-stage development area, and we have a lot of coverage there and we provide a lot of testing and service offerings. Then we have the clinical stage with the production of large clinical lots all the way through commercialization. And the Cognate acquisition fills here a significant gap in our portfolio around the manufacturing and process development activity for cell and gene therapy products. The final phase is then the commercial manufacturing and the associated support services. And here, we provide the lot release, testing that we mentioned, validation services. And then Cognate again contributes here largely with large-scale manufacturing capabilities. The current market size for biologics testing that aligns with our testing portfolio is between $1.80 billion to $2 billion. The number of biologics and biosimilars in the marketplace is growing, and this growth is expected to continue at a rapid pace. The main driver for the 20%-plus growth that we are seeing is the cell and gene therapy market. And we don't anticipate this trend to slow down anytime soon. Cell and gene therapy drugs are generally referred to as new biologics. Viral vaccines like these COVID vaccines are also falling in this category. And then cell and gene therapy drugs, in general, require more frequent lot release, testing and a much quicker turnaround time. So those are really several new requirements that are currently shaping the testing market. For biosimilars and other innovator molecules or the more traditional biologics, we're seeing a slowing but still continued solid growth. Right now, we're focused in Charles River in every business unit on the cell and gene therapy growth and how we best serve this market. And our current portfolio coverage within biologics testing is solid. And what I presented to you at the beginning during the introduction also applies to the cell and gene therapy market. We continue to bolster our development capabilities through onboard cell and gene therapy development platform assays. We continue to develop customer assays on a customer-by-customer basis, and we continue to fully support clients' clinical GMP development and product release. So the unique cell and gene therapy requirements are mainly related to faster time lines and customized offerings that apply to the individual client products. We're always reviewing our instruments and our technology platforms to ensure we're serving our clients in the best possible way. And our current focus is primarily on rapid technologies and automation because that will continue to drive down our turnaround times even further. The cell and gene therapy market in general is very fast-moving. So this will be an ongoing assessment, and there will always be tweaks that need to apply to our portfolio. As I previously mentioned to you, I'm very excited about welcoming the Cognate team to Charles River. Clients really appreciate our strong portfolio coverage within biologics testing, our global footprint and the capacity for growth that we're offering. And they're also looking at us as a very reliable partner with very competitive turnaround times. However, clients are looking to really reduce further the number of vendors they're doing business with to streamline the administrative efforts, like vendor audits. So with Cognate, we've added a high-quality manufacturing partner with a strong market reputation, and Cognate's capabilities to serve clients through clinical and commercial phases further progress our journey to become really this end-to-end service provider for cell and gene therapy clients. Cognate's CDMO process development and manufacturing expertise will feed directly into the biologics GMP testing pipeline. And additionally, a harmonized testing and manufacturing approach represents a very attractive offering for our clients. They're just seeing more and more the value and quality improvements in addition to scaling because both really goes hand in hand. From a global footprint perspective, we have 8 sites across 4 different countries, 4 locations are in Europe and 4 in North America. We have ongoing capacity and capability expansions at all of these facilities in response to the strong market growth. The Pennsylvania expansion that took place a few years ago has been really instrumental in accommodating the increased demand that we're seeing. We're currently active in 45 countries across 6 continents, and we provide our services to about 1,000 clients worldwide. What is interesting is that a significant portion of the APAC release testing that we're providing is actually performed in Europe and North America due to the regulatory requirements around lot release testing. Because for release testing for cell and gene therapy products, they have to be performed at the final destination. So there are no mutual recognition agreements in place at this point. So that plays a big role when we're looking at our overall footprint strategy and next steps. And then to summarize our overall strategy and everything we talked about today. We need to serve our clients fast and further expand client connectivity, which is why we're continuing to invest in IT, which is very important. The more data we can make easily accessible for our clients, the faster and better the client journey is going to be. We will continue to provide best-in-class service and focus on customized solutions to effectively serve the cell and gene therapy market. Our scientific strength allows us to maintain a comprehensive cell and gene therapy portfolio, close any current or future gaps and accommodate other new future novel therapies that are entering the market. Our focus remains on capacity, and we will continue to drive expansions aggressively across the globe in response to the fast-growing cell and gene therapy market. We will also continue to concentrate on efficiencies and automation, resulting in increased speed, flexibility and adaptability. Thank you all for your attention. And now we will share a short video of Cognate's capabilities. And then my colleague, Mike Austin, will provide an overview of our cell and gene therapy CDMO business. [Presentation]

Hello, everyone. Mike Austin here. I'm the Vice President in Cell and Gene Therapy, CDMO for Cognate-Charles River, and I joined the Charles River team recently with the acquisition of the Cognate Biosciences (sic) [ Cognate BioServices ] organization. It's my pleasure -- I'd like to provide an overview to our cell and gene therapy service division at Cognate-Charles River Laboratories. This overview will be helped by some virtual orientation through the accompanying video and also some special examples of our capabilities and infrastructure throughout this slide presentation. I would like to emphasize that given the planned acquisition of Vigene by Charles River Laboratories, any reference in this presentation to Vigene will only be relevant when the transaction closes. Firstly, some positioning. Charles River's acquisition of Cognate BioServices significantly accelerates the company's global reach in cell and gene therapy. The Charles River Laboratories and Cognate integration makes us a leading, premier scientific partner for cell and gene therapy development, testing and manufacturing. It certainly puts us in a leading position in this space, with annual revenue anticipated around USD 140 million for this year, with planned aggressive growth beyond clearly represented by the strong CAGR. We are very proud of the capability we've built in Cognate BioServices. And together with Charles River's existing strengths, it's our ambition to maximize our potential in the cell and gene therapy area, primarily with focus on enabling more therapies and touching the lives of more and more patients. This is a strong growing space, in which we see our integrating offerings addressing access to approaching 3,000 programs in the CDMO market. To deliver this, Cognate BioServices and Charles River Laboratories have significant existing global reach within multiple facilities across the United States, United Kingdom and the European Union. Calling out the enterprise fit here provides a strongly integrated platform, serving the client throughout their development and commercialization journey. Our focus on supporting this growth is through effective utilization of existing assets and driving planned expansions at each of our sites. So Cognate BioServices, what does our business look like? Firstly, we are a key CDMO partner for clients that need comprehensive and integrated cell and gene therapy development and manufacturing solutions. Our primary expertise is in GMP cell therapy manufacturing, as you can see, contributing about 50% by revenue. In addition, we have expertise in the production of plasmid DNA and viral vectors, both contributing equally by revenue currently at around 20%. And then the remainder of our business is in other value-adding components which serve and complement the cell therapy space. Our strength in this space is supported by subject expertise, experience and a strong and developing track record. This experience extends to the production of a variety of cell types and technologies and also platforms commonly used in cellular immunotherapy, immuno-oncology, regenerative medicines and advanced cell therapies. The patient-centricity of our approach extends beyond the highly advanced technologies beyond the state-of-the-art facilities and future-proofed equipment. As importantly, we execute our purpose through an organization of talented staff across our 4 current locations. This business is a knowledge-based proposition, and we take care to invest and develop with tacit knowledge of all in our organization. Moving on. So from this slide here, you can see, obviously, we are a global proposition and our capabilities are represented on the geography in this slide. We have our cell therapy manufacturing in Memphis, Tennessee; and a supporting process development and analytical capability in Hanover, Maryland in the U.S. Our U.K. site in Kiehl and our Matfors site in Sweden both provide plasmid DNA manufacturing capability. In addition, the Kiehl site provides viral vector for manufacturing capability also. We're extremely pleased with the model we've developed. It's an effective and integrated network and essential to this as an infrastructure of logistics, quality, regulatory and licensure and supporting services. Together, it's a great team of people. At this stage, it's also too important to call out Vigene's viral vector and plasmid DNA manufacturing operations in Rockville, Maryland, United States. So this is a very important slide. It really encaptures the whole carbonate Charles River proposition in terms of process, in terms of infrastructure, geography and ultimately, the integration of our technology and services. To help position this slide, let me walk you through how our individual offerings contribute to an integrated global gene-modified cell, cell therapy solution. Ultimately, the picture you're looking at represents a very structured and integrated cycle. It begins with our most important client, the patient, and as importantly, it ends with the patient. A compelling currency in this slide, as you look at it, is time and process integration. So focusing on our Cognant Memphis cell therapy facility. It's strategically cited to benefit from its proximity to the Fedex air freight hub at the adjacent airport. So as you orientate on this site, moving from bottom left on this diagram and progressing up and to the right, cells are collected from the patient, fast-tracked to the Memphis facility. Our existing capabilities and expertise in our HemaCare and Cellero companies will ultimately provide for further opportunity to complement and enhance this process in the future. Cells received at site and those of interest are selected and enriched before being modified. At this stage, we will then utilize the contribution from our Kiehl and Matfors sites. So following the middle bottom arrow from the United Kingdom and European sites up, you can see how plasmid DNA and viral vectors will serve and support this process in the cell modification stage. The modified cells are then expanded and proliferated, harvested, formulated, frozen. And again, they're fast-tracked back to the patient where the cell therapy is thawed and administered. Complemented to support in the process of Memphis, we can call on Charles River expertise and strength in analytics testing, thus keeping it in-house, assuring reliability results and adding to our ability to provide cell therapy solutions in an agile and dependable way. Important to recognize that the process along the top is determined by our clients. We execute against the client process and do so in dedicated manufacturing suites on sites. As stated before, Vigene will complement this channel with U.S.-based supply of plasmid DNA and viral vectors. So I'll provide some further detail on each of our cell and gene therapy locations and capability. As previously described, our cell therapy facilities are in Memphis, Tennessee. We also have smaller facility in Hanover, Maryland, which provides process development, support and analytical services. Memphis has an established and proven track record achieved over a decade. There are currently 22 suites, which are discreet, and they support GMP operations, all with adherence to the U.S. and EU standards. As mentioned earlier, we're commencing a significant investment and expansion of the Memphis site with an additional build of a further 9 suites. Turning our attention to our gene therapy offerings. We have 2 sites, one in Kiehl, United Kingdom, and another in Matfors, Sweden. Kiehl and Matfors each had 20 years' experience in manufacturing and have seen significant expansion and capability investment in recent years. Both sites produce HQ plasmid DNA at the 15-liter scale and also GMP DNA at the 50-liter commercial scale. In addition, Kiehl has competency to deliver viral vector manufacturing with a supporting process development capability also. In our Matfors site, we are currently planning to expand our offering to establish an increased commercial scale, 300 liters for GMP. Finally, Matfors also has other offerings in addition to DNA. It has capability in the microbiota space and also in technical protein manufacturing. As I mentioned earlier, Vigene provides U.S.-based gene therapy capabilities from their facility in Rockville, Maryland. The site has over 100,000 square feet of purpose-built facility, encompassing 15 GMP clean room suites. Important to note, Vigene has established expertise in gene therapy for over a decade. And their primary capabilities are in viral vectors for gene delivery, AAV, adenovirus, antivirus and retrovirus. They have also process development and GMP production competency. In addition, Vigene also produces high-quality and CGMP plasmid DNA. So turning our focus on cell therapy capabilities in more detail. Cognant has extensive expertise in the development and manufacturing of complex cell therapy solutions. This expertise and experience has been developed over 10 years. There's an established and record -- established record in supporting clients from clinical phase through to commercial-ready GMP production across multiple cell types. Cell therapies are the ultimate expression of personalized medicine, and the process is typically customized to the clients' requirements. The Memphis facility is designed to reflect this and represents a state-of-the-art solution to provide for flexible and highly controlled production suites. These suites will accommodate all client requirements for a variety of equipment and process solution. Small batches and small scales are relevant to the process, planning less than 1 liter volume and shake flasks going up to larger 200-liter bioreactor systems. And you will see some of the examples of these in photos later. The Memphis facility is about to start significant further investment and expansion to provide flexibility to accommodate a variety of large programs, both for allogenic programs involving multiple patients and autologous programs, which are programs bespoke to the individual patient. Focusing on our Cognate gene therapy capabilities in more detail. As you saw on the previous slide, at Kiehl and Matfors, we have established gene therapy capability, supporting clients with solutions from preclinical to commercial-ready scale. Our core competency is plasmid DNA manufacturing and integrated capability across the 2 sites facilitates the value chain from small-scale preclinical at 5 liters through to commercial's capability at 50-liter scale. And as previously stated, we are currently looking to increase our commercial scale to 300 liters in this space. In addition to plasmid DNA at Kiehl, we have experience in producing viral vectors. In Matfors, as I said earlier, we have microbiota and technical protein capability. And similar to the cell therapy operations, the gene therapy sites have extensive analytics, quality assurance and quality control capability to underwrite our confidence in execution. So some visuals. On the left, you'll see a typical control suite at our Memphis location. And you'll see it in dynamic operations. The nature of attention to detail and process and environmental control is evident in this photograph as our highly trained staff process cell material in the process scheme described earlier. Turning our attention to the right. You'll see a control suite at our Kiehl facility in the U.K. with once again, highly trained and competent staff executing a process for under viral vector production at the 200-liter bioreactor scale. I think for both, it provides a good insight into the smaller scales relevant to the personalized medicine proposition. And our capital expenditure program is influenced accordingly. So typically, for those of you who may have seen large sort of multi-thousand bioreactor setups in something like the monoclonal space, this is different from that and represents the nature of our business at the bespoke patient level. So in summary, I hope this presentation articulates and reinforces the strategic fit Charles River laboratories and Cognate Biosciences. Cognate is highly complementary to Charles River's existing nonclinical capabilities and established expertise. Our attention is to continue to further our capabilities and capacity to support strong client demand. This strategic fit enables clients to be able to seamlessly conduct analytical testing, process development and manufacturing for advanced modalities with Cognate Charles River as a signal silent scientific partner. With time as an important currency in this space, it allows clients to achieve their goals of driving greater efficiency and accelerating speed to market and speed to patients. As emphasized in a previous slide, cellular products from HemaCare and Cellero, both of which are Charles River companies, can be future starting points for our client cell therapy programs. Thank you all for your attention, and I look forward to questions in the panel section later in the agenda. With that, I will conclude and hand over to Colin.

Thank you, Mike. I'm Colin Dunn, and I'm Senior Corporate Vice President for Research, Models and Services. We participate in a market sector that is worth $1.7 billion. We have been working with research models and supplying them for over 7 decades. One out of 2 small models sold in the western markets is a Charles River model. These models are used from very early-stage research through to more sophisticated studies in safety assessment and even manufacturing. In 2020, we acquired HemaCare and Cellero and non participate in cell supply and our cell supply has been involved in all of the FDA-approved cell therapies currently on the market. Our position as a global leader in production and breeding of research models is thanks to our significant scope of streams and species and even substreams that we supply on a global basis. We have expertise in production and biosecurity, which ensures we supply animals of the best health standard and our geographic locations close to biohubs and academic centers ensure we have got excellent availability. Our global footprint includes facilities in China, and this remains as a very high-growth market. During the pandemic, our services business continued to flourish and expand. The genetically engineered models and services business, a large research access and our specialized or highly customized research ready cohorts on a regular basis and even to be supplied to their collaborators. The diagnostic services ensures that our internal quality control is of the highest stringencies and likewise, this can be applied for our clients as well. In the In-sourcing Solutions business, we provide our management expertise to clients in their facilities and more recently, we have developed turnkey vivarium in key biological hubs. In 2020, as I mentioned, we acquired the HemaCare and Cellero businesses and like the research model business, these cell products are supplied at a very early stage of research all the way through to development and manufacturing phases. Cell and gene therapy is a theme that spans the research models portfolio. The humanized immunodeficient research models have been used for many years in immuno-oncology. And more recently, they have been applied for CAR-T therapies and other complex modalities. Our turnkey facilities in CRADL, Tolls River Accelerator and Development labs, present in Cambridge, Massachusetts and South San Francisco, are key to offering our biotech clients both large and small as well as new startups, access to the vivarium space that they can rely on. It's interesting that our key clients in smaller biotech it for its self-supply business also are occupants of our CRADL facilities. We also see, in our CRADL facilities, clients who make very good use of our GEMs business. So this illustrates the connection between cell supply, biotech, and highly specialized and customized models. Our investment in CRADL continues to expand in the key biotechs, in the key biotech hubs and we see it also expanding into new geographies in the very near future. As I mentioned, in 2020, we acquired HemaCare and Cellero. This has allowed us to support advancing discoveries across cell therapy continuing by providing the highest quality human derived biological materials. We are -- have been able to expand -- to supply biological materials from both healthy donors and from patients and to be able to provide these in a form that is both for research use only and also for GMP. This market is expanding very rapidly. There is expected to be a 30% CAGR over the next few years. And in the -- over the course of 10 years, this will expand to a value of about $2 billion. Our capabilities with both HemaCare and Cellero are very broad. So first of all, we are able to ensure the supply of cells for both autologous and allogeneic therapies. We focus on the ability to be able to provide a highly customized product and that this product is able to be available both in bulk cells and very highly refined cell isolates. This represents overall a very comprehensive solution, so that there is one scientific partner able to provide across the spectrum of requirements. In the cell supply business, we're providing cells into cell therapy, where there's about 2,000 cell therapy programs currently underway. About 2/3 of these are preclinical. All of these programs will require cells. And depending whether it's autologous or allogeneic, the average spend can be between $1 million and $3.5 million per program. We believe that we are able to address about 3/4 of all the total programs that are running. With the acquisition of Cellero, it allowed us to have donor rooms in each of the corners of the U.S. So we are able to supply clients from coast-to-coast and assure a strong network of supply and assure the logistics. With Cellero, it enabled us to supply product from human donors and further refinements to the type of cell isolates that we were able to provide. Donor recruitment and management is critical to ensuring we have a healthy supply of donors. And the fact that they're recallable over a period of months or even years is very important to our clients who need the consistency in supply over a long period of time. We screen our donors on each occasion they donate and our experience in apheresis is unparalleled in the industry. We now have experience of over 300,000 collections. So this means that our apheresis process is highly optimized and very well validated. Our process for in-house processing is fully vertically integrated, meaning that we can collect cells, isolate and cryopreserve all on the one day. This is very important for quality, so the cryopreserve product reflects fresh cells in terms of the cell function and viability, and you then have the convenience of cryopreserved product and it takes away a certain risk associated with shipping fresh cells. The cell supply process also benefits from our internal supply chain so that our product release and testing relies on colleagues and biologics and microbial solutions so that this means that all of the steps are seamless to the client. We're expanding this further so that we have an option for GMP long storage offering. The combined cell supply, along with our manufacturing solutions, allows an end-to-end solution going all the way from cells through to Cognate as a CDMO. We believe cell therapy developers are able to rely and trust on us as 1 scientific partner able to deal with this end-to-end process. This is very important so that they can see that we are derisking this complex process and ensuring that we are bringing a very compelling value proposition. In summary then, with the research models and services growth drivers, we continue to expand in China, we are expanding our footprint in the biohubs with CRADL, we're developing numerous strategic relationships for our GEMS business, we're still very focused on supporting our clients in academia and biotech with the research models and services that they need, and we are now very focused on the client experience and journey and picking up on our benefits and experiences with the digital enterprise. As I've detailed, we now also have the self-supply business, and we're able to reach clients with product in both research assembly and GMP quality supplied from healthy donors and also patients. Thank you for listening. And I can now hand over to Julie Frearson, who will discuss our technology partnerships.

Hello, everyone. Thank you very much, Colin. I'm going to spend the next 10 minutes giving you an update on our technology partnership strategy. Jim has mentioned this in the earlier session; it's an endeavor to allow Charles River to future-proof its portfolio by reaching out into the external ecosystem and doing a series of build to buy partnerships around cutting-edge technology. This partnership strategy has been running now for 3 years. It's resulted in a portfolio of 12 partnerships to date, 9 of which have a privileged position for acquisition by Charles River in the future, and we've also managed to achieve our first acquisition from this portfolio in distributed bio. We've invested about $40 million to date and the current visible pipeline provides us with an opportunity to invest at least a further $40 million in the very near future. As this has developed, we anticipate a steady state portfolio about 15 to 20 active partnerships. And you can see from the pie charts that they are already supporting all of the business units inside Charles River with a particular enrichment in discovery, which reflects the high science need of that business. Additionally, you can see that key strategic imperatives of Charles River in terms of digital and cell and gene therapy advancements are also very well catered for in the ongoing portfolio. Here is a slide which just sort of gives you, in one place, a list of all the partnerships that are signed to date. Again, you can see they cover all business units. They cover all technology types from life science assays through to software plays through to devices. And they're geographically spread. They cover Europe, North America and China. These partnerships have been organized into 3 sub-portfolios. All of those portfolios are a result of direct client and market drivers that we experience in our day-to-day business. The advanced modality cell and gene therapy sub-portfolio has 2 signed partnerships and many more in planning phase. And this strategy is driven primarily by the fact that our clients are increasingly drugging disease using a variety of modalities with particular emphasis on the recent growth in cell and gene therapy. Our next-gen biology sub-portfolio has a mix of existing partnerships and planned partnerships, and this is all driven by our clients' need to understand how drugs will behave in human systems as early as possible in their development, and is also a reflection of the types of challenging biology that we're being faced with as a high-quality CRO. We often have to be able to use technologies that unlock these difficult to drug targets. And the third sub-portfolio is already very well-established with a number of live partnerships, it's digital AI informatics. This is driven primarily by the fact that our clients are increasingly themselves using data and AI and machine learning to drive forth their science, their decisions and they have an absolute expectation that these tools and technologies will transform the clock speed of discovery and development. In doing so, they expect our clock speed to be transformed so we can support them effectively. And so through these partnerships and other initiatives in Charles River, we hope to digitally transform our core portfolio, drive efficiencies, increase our competitive differentiation, and most importantly, for our clients, reach patients sooner with the candidate drugs that they're developing. I'm now going to take you through some example our partnerships in each of these sub portfolios. The first 1 is advanced modalities, cell and gene therapy. So already in discovery, we're using antibody fragments, discovered from the distributed bio library to help our clients direct their cell therapies, including CAR-Ts and CAR-NKs. In fact, nearly 1/3 of Bit Bio's discovery programs that are currently running are actually for cell and gene therapy applications. In our cell supply business, we're anticipating a partnership with a microfluidics platform that will help us dramatically standardize the processing of donor cell materials, enabling greater long-term viability for those cells for their applications in process development and allogene AXL therapy. In our Biologics testing business, we have done a partnership with a company in China called JADE Biomedical. We are putting together our GMP and GLP biologic testing expertise with their localized knowledge such that we can together become a global partner for advanced modalities in the testing arena. In the next-generation biology sub-portfolio, we have a number of mature partnerships. Bit Bio is a stem cell platform company, which allows us to produce authentic human cells at scale. We're using that primarily for disease modeling at the moment. They are also applying this technology to the future of allogeneic cell therapy. Cypre is a bioprinted 3D platform which allows us to replicate the tumor microenvironment in the laboratory with a high degree of accuracy and therefore, allows our clients to have access to a system that will test their compounds in early immuno-oncology models. Kibur Medical is a micro device platform company. This is allowing us to dramatically change how we do in vivo studies. With this device, you can test up to 15 compounds in a single animal. You can do combination studies, which is very important in oncology. And additionally, not only can you monitor the size of a tumor in an in vivo model, but with this device, we can track complex biomarker changes in the tumor tissue around the device. Last but not least, we're embarking on a partnership with a Cryo-EM platform company. This is a technology which is rapidly emerging and opening up the opportunity to do structure based design for small molecule drugs against targets that previously we were unable to achieve. And that's because this particular platform allows us to look in to the intimate structure of a protein, even if it's large protein complexes and complex membrane proteins. And this is about to revolutionize the breadth of difficult targets that we can address through small molecule means. Digital AI and informatics. We have a number of live partnerships in this space and a number anticipated as well. We've been working with Fios Genomics for just over a year. They have been doing large scale data, multidimensional analysis on both discovery and safety data for our clients and are growing very, very nicely since the partnership started. The Deciphex partnership with Charles River is considered to be truly transformational. It's changing how we do preclinical pathology, introducing speed and unheard of efficiencies in how our pathologists review their data. So the microscope is being taken out of the process, and all data is captured in digital images. There are seamless digital workflows and with Deciphex, we are developing AI-powered tools that will really help the pathologist drill into those images that have annotation or diagnostic-worthy information in them. I'm also really pleased to say that we are party to, along with a large pharma client, the industry's first end-to-end fully digital pathology assessment of a GLP compliance study. This will be published in the next few days. And there are several other large pharma clients quickly following suit in use and adoption of this platform. Another area where AI and machine learning is transforming how we do drug discoveries in small molecule drug discovery. We have 2 partnerships, which are allowing us to interrogate much larger areas of chemical space than we've ever done before as we find hits against new targets. And another partnership, which allows us to use predictive models to optimize multiple small molecule parameters at once, thereby dramatically changing the cycle time as we develop small molecules towards the end target product profiles. And it's becoming commonplace now in the industry news to see examples of how the use of AI in small molecule drug discovery is taking multiple years out of the process to the clinic. So I hope I've given you a reasonable insight into how our partnership strategy has evolved, the types of technologies we're engaging in. We really do believe that this partnership strategy will provide a differentiated, high-growth and market tested set of acquisition targets over the next 5 years for Charles River. It's helping our clients in real-time by providing access to cutting-edge technologies with the assurance that they have been vetted by Charles River. And this strategy will continue to support all business units with special emphasis on the key strategic themes of digital, and cell and gene therapy, discovery, development and manufacturing. Thanks very much for your time and attention, and we will now move into the Q&A session. Thank you.

Thank you, Julie. We'll now begin the Q&A. John Kreger from William Blair. Good to see again, John.

I just have one question. I think it's probably best for David. So the big moves that you guys have made into cell and gene therapy, very, very helpful deep dive into that, by the way. It seems like a lot of that's going to be more capital-intensive than your sort of legacy businesses. Is that correct? How do you think about that? I think some of the other CDMOs have CapEx burdens as much as 15% or 20% of revenue compared to your 7%, give or take. Should we think about your CapEx needs needing to sort of shift upward as this becomes a bigger part of your portfolio?

So actually in my preprepared remarks, we did say that the capital would move up to about 7% of revenue, which is a little higher than where we are currently or have been in the last couple of years. But that said, I mean even on the video that we've called out today, we were trying to give you a flavor that Cognate is not the same type of CDMO business as other CDMO business incentive capital needs. It is less intense. It is more personalized. It is talking about using 1-liter, 10-liter type bags, plastic containers and so on. So it's not the heavy stainless steel type CDMO business that we're all familiar with. So there's quite a marked difference between what we have acquired in the cell and gene therapy space in terms of CDMO and your standard CDMO businesses. That said, yes, we are expecting to see a step-up in capital, but it's more to do with some fantastic growth rates that the recently acquired companies have. So obviously, if they're growing at 25% to 30%, we need to fuel that growth. It's less about, if you like, the CDMO angle that you would traditionally expect.

Maybe a follow-up to John's question. I'm curious how you think about a distributed model for cell and gene therapy. There are a number of companies lines at Berkeley like smoking developing kind of on-site cell and gene therapy systems to go in hospitals. How do you think about that market over time evolving into a more distributed model?

[ Barry? ]

Sorry for that. So Tycho, thanks for the question. The model that we are -- we're looking at right now is to have our cell therapy facility in the most appropriate and most efficient location for shipments. So what we do, we are in Memphis, Tennessee, where we have Fedex. So that was a strategically located facility. And then the model would be that we make our product there. And then, in many cases, declined or maybe at some point, our results could have another facility somewhere where the patients are. So that's a typical model that there is a satellite location on the East Coast and the West Coast. Generally, the clients will have that themselves. But we certainly would be working with the client on making sure that they are short expiration times of the product is taken care of. Does that answer?

And then -- it does. Yes. And then a follow-up on the distributed Bio business. I'm just curious if you can talk about the economics for that segment. We've seen some companies like Twist try to get at milestone and back-end royalties for antibody discovery and development. Is that something that you have any discussions with clients around? Or is it really just fee for service?

Why don't you take that, Julie?

Yes. So the model that distributed buyers' been using to date definitely is a mix of fee-for-service downstream milestone opportunities. And we still consider that pretty market for antibody discovery plays. Most organizations and competitors in that space are receiving those downstreams, subject to the quality of their offering, obviously. There are some more commoditized offerings, I would say, that do just go for fee-for-service. But I think if you're contributing value, you can add that into the concept of your business model.

Okay. Just so I'm clear, you said milestones. Can you get royalties too? Or is it really just milestones?

Generally speaking, primarily milestones. We find that push back on royalties in the market.

And that same is true right across discovery. So we have found some clients that they want to -- I say the word, skin in the game, right? Of course, our skin in the game is we want repeat business. But if you've got a new client who has never worked with us, often, they'll sit around the table and say, "Well, other competitors of yours are offering milestone sort of arrangements, will we offer that, too?" So the answer is yes, because we want to have our seat at the table when we have that discussion. Often the case is when you get into the economics of it, and they started to work with us and talked to us, actually some of those milestone agreements fall by the wayside anyway. And they revert to the fee-for-service because the fee-for-service is cheaper if you believe that your molecule is going to be successful, right? Because obviously, we want some upside on the milestone. But we tend not to do the royalties. We are not in the business of competing against our customers. And we are a fee-for-service site business. So we do have a number of milestone agreements taking discovery. They are relatively small compared to the totality of Charles River's revenue, as you can imagine. Occasionally, we call it out because it makes a pop to a particular quarter. Q3 last year is a good example where we had a 50 basis point increase in DSA because of a milestone that we had received. But often, they don't make a meaningful difference to the total revenues for the year.

We have few, if any, requests for us to entertain a royalty deal. I think most clients think that's overreaching. And of course, from a practical point of view, we have an operating business there. We want to be paid well for what we do for our services. Most drugs don't get to market. So being paid by the royalties to be, I think, a slide financial structure for us. So I think we're going to be primarily fee-for-service. There's some small amount of milestones. And I think we have a good ability to predict the outcomes. Obviously, you can't perfectly predict it. We have a pretty good assessment whether the molecule is promising or not. Hopefully, those milestone payments will be beneficial over time, but I think royalties will be unusual.

The next question will come from Dave Windley at Jefferies.

I wanted to ask the first one on cell gene therapy manufacturing, and particularly Vigene. I appreciated the deep dive in the space, expected it, but I appreciate it. And I wondered in relation to Vigene, what the -- or if there is a specific unique characteristic of that business or a uniquely good fit into what you wanted or needed that drove your willingness to pay what is, I think for you, a pretty high valuation for that business, albeit it is small, I understand. But you covered a lot and kind of mentioned Vigene, but in terms of Vigene-specific capabilities, is there something unique about that business that makes it worth chasing that valuation that high?

[indiscernible]

Take that question, if you like. So thanks for the question. It's actually a really good question. So for us, the Viking acquisition is extremely synergistic with the Cognate organization. So if you look at the European sites of Cognate, so the former COBRA organization and the capabilities of doing the plasmid biovector, so Vigene does that, too. But on the biovector side, they have a different skill set. So the European sites focus primarily on lentivirus, which is a material they use for the cell therapy. And then the Vigene organization primarily is -- expertise is in AAV. So we're actually adding an expertise that is well-known in the industry. The other area is that they have very optimized plasmids. So that gives us a technology leg up in the industry, and they also have half the share of products that we are adding there. And then in addition, the geographic location of Vigene because we have our best [ metabasis ] backers in Europe, is a huge benefit for us. So together, those 2 organizations together, in addition, was the cell therapy, CDMO, really cover the whole spectrum that we want and what we need in the plasmid biovector and cell therapy and gene-modified cell therapy space. So it's -- so there's -- it's very, very synergistic.

Very good. And broadening out on the cell and gene therapy and the numbers, I wanted to clarify maybe a number that might have been offered in an answer to an earlier question. If I take the 10% quantification of current business, which does not include Vigene, if I add Vigene onto that, if I grow that at the kind of 25% to 30% numbers that you're talking about, I get a number that's probably in the $650 million range for 2024. Is that -- maybe it's a question for David. But is that a reasonable target for where we could think of our cell and gene therapy being at the end of your guidance rising?

Well, we certainly called out the last 5 acquisitions would give us revenues of $0.5 billion by 2024. So I think you're in the ZIP code.

Dave, you have to think about the underlying cell and gene therapy business across the rest of our portfolio and to grow that as similar growth rate. So the all-in cell and gene therapy distance will be significantly higher than that.

And Dave, to your previous questions around the price tag for Vigene. I know that not many of those companies are for sale. So might already have got an end of one, but somebody bought [indiscernible] for a similar multiple.

Our next question will come from Dan Brennan at UBS.

Maybe first question is just on utilization on manufacturing across the cell and gene therapy facilities. I know you're in the midst of several expansions which you outlined. But kind of what is utilization today? And kind of what's assumed after you get through these capacity expansions?

Dan, on the utilization of the current facilities. We don't provide the exact numbers of that. So we acquired some facilities that have has capacity and have capacity space, expansion space. So -- and we will be utilizing that as we go on as our demand growth. And then on the Biologics Testing Solutions business, Justin outlined that we have several expansions going on there. It's the same thing there. We have multiple facilities. And every year, we do some expansions. It's actually the same case in our safety organization or discovery organization. So we will always do some expansions. We'll do them just shortly ahead where we think where the demand is so that we can leverage them and utilize them to a pretty high percentage.

Got it. And then maybe just on the competitive dynamics in cell and gene therapy, you provide a lot of information on our existing businesses, excuse me, and your relative share, but just given in cell and gene therapy, it's still -- it's -- there's only a couple of companies that are public and many private players. So can you just give us a sense -- clearly, you've got a lot of different capabilities. I don't know how you want to define it, but across Cognate and Vigene, just kind of where those businesses are from a competitive standpoint? Are they 1, 2, 3, 4? Any relative share? And then related to that, any color you could provide us out there kind of success in terms of competitive win rates?

Thank you. While I assume that Cognate is one of the top 3 contract manufacture players in cell therapy, sort of on its own to add in the capabilities that we have in plasmid and DNA and then you add our overall capabilities to support cell and gene therapy prices to the whole drug development spectrum. We're not going to declare anything except to say that we are certainly organized to be the leading player in that space all in, and have a strong biologic business is going to help pull-through more contract manufacturing business and vice versa. So I think without adding to it, we could be a principal player in the space, very focused on cell therapy and secondarily in gene therapy, and that's without any M&A.

Got it. And then maybe last one is just in terms of commercial products that you work on today, you kind of gave the slide that stressed a number of commercial approvals that are expected over the next 5 years. Any way to think through commercial product today and kind of what's implied in kind of the 3-year guidance number of commercial products that you would assume in your guidance on the cell and gene [indiscernible] side.

Yes. So Dan, that was my follow-up question. So on the cell and gene therapy space, in cell therapy, our current portfolio is all clinical. We may have clients that get approval. Obviously, we don't know that, if that is going to happen or not over the next years. In our guidance, we assume that we will stay of the clinical portfolio. On the gene therapy, we obviously provide products on Biovectors plasmids that we use for commercial products, but on the -- and clinical products, but at this point, from the majority, primarily it's a clinical -- clinical operations, and that's assumed to continue.

Great. Well, there are no further questions in the queue, so I will hand it over to Jim Foster for some closing remarks.

So first and foremost, I want to thank our colleagues for deep dive and multiplicity of areas there, and hope you found it comprehensive. Hope you have a better sense of the power of our portfolio, the uniqueness and the power of the portfolio, which we think continues to distinguish us from everyone from the competition. If you have a sense of the power of the science of 2,400 PhDs that are working daily with thousands of molecules for thousands of clients daily, think you understand our primarily focus is on the strength of our people and the hiring the best people in the world and lighting them up and retaining them and having to build long-term careers here. Hope you have a better sense of the importance of responsiveness that we feel to our clients that the fact that they demand it and the fact that we're doing everything we can to be more responsive than they could do it internally and more responsive than our competition can do it and that we're committed to a digital overlay of our entire business and having greater connectivity with the clients and hopefully take a year out of the drug development process. Hope you understand that our M&A and our strategic deals will be all about enabling and building out a broader portfolio heavily in discovery and cell and gene therapy and a host of other areas, biologics as well. Hope you're pleased with our 24 targets. We are low double-digit growth rate and 22.5% operating margin. We're confident in our ability to deliver those. And we are committed to building value for all of you, for our shareholders. And our goal is to once again double the size of the company and our EPS over the next 5 years, even though we're specifically talking about 3 years here. So I'm sure you felt our enthusiasm for our industry and the place that we play in it and how much we enjoy working as a team. So thank you all for your time and attention today. Thank you.