CHARLES RIVER TO ACQUIRE ARGENTA and BIOFOCUS A full-service CRO with integrated early-stage capabilities James C. Foster Chairman, President & CEO Thomas F. Ackerman Executive Vice President & CFO March 13, 2014 2014 Charles River Laboratories International, Inc. 2013 Charles River Laboratories International, Inc.
Safe Harbor Statement This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as anticipate, believe, expect, will, may, estimate, plan, outlook, and project and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Forward-looking statements include statements in this presentation regarding the acquisition of Argenta and BioFocus; expectations regarding the timing of the closing of the acquisition; Charles River s ability to achieve expected synergies; and Charles River s expectations with respect to the impact of Argenta and BioFocus on the Company, its service offerings, net sales, sales growth rates and earnings; Charles River s projected future performance including sales and earnings per share; as well as Charles River s future growth in the area of discovery services. Forward-looking statements are based on Charles River s current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to, the ability to successfully complete the acquisition of Argenta and BioFocus. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 25, 2014, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this presentation except as required by law. Regulation G This presentation contains non-gaap financial measures, such as non-gaap earnings per diluted share, which exclude the amortization of intangible assets and other charges related to our acquisitions and expenses associated with evaluating acquisitions. We exclude these items from the non-gaap financial measures because they are outside our normal operations. This presentation also refers to our sales in both a GAAP and non-gaap (constant currency) basis. There are limitations in using non-gaap financial measures, as they are not prepared in accordance with generally accepted accounting principles, and may be different than non-gaap financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-gaap financial measures in this presentation helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of these often-one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions (and in certain cases, the evaluation of such acquisitions, whether or not ultimately consummated) is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities, such as business acquisitions, happen infrequently and the underlying costs associated with such activities do not recur on a regular basis. Presenting sales on a constant currency basis allows investors to measure our sales growth exclusive of foreign currency exchange fluctuations more clearly. Non-GAAP results also allow investors to compare the Company s operations against the financial results of other companies in the industry who similarly provide non-gaap results. The non-gaap financial measures included in this presentation are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-gaap results consistent with applicable rules and regulations. Quiet Period Disclaimer The Company is presently in quiet period pending its first-quarter 2014 earnings release. As a result, the Company will not comment on financial performance for the first quarter of 2014 or 2014 guidance. 2
Transaction Overview e Charles River signed a definitive agreement to acquire Argenta and BioFocus for 129M (~$179M) in cash Precisely in line with strategy to build a broader portfolio to support the drug discovery and early-stage development continuum and increased virtualization of biopharma Acquisition expands unique early-stage capabilities Believe it advances CRL s position as a market leader in the multi-billion dollar outsourced discovery services market Offering a full range of products and services from target discovery to IND filing Adds significant ifi expertise in medicinal i chemistry and in vitro discovery 3
Transaction Overview, e, cont. Financially attractive transaction Purchase price is ~2x sales and ~12x EBITDA Based on Argenta and BioFocus s 2013 results Estimate ~10% revenue growth in 2014 Accretive to non-gaap EPS in 2014 by $0.10 Acquisition and associated fees to be financed through a combination of borrowings under CRL s existing Euro- denominated revolving credit facility and cash held in non-u.s. subsidiaries Expect to utilize at least $70M of cash on hand Interest rate = EurIBOR + 125-150 bps Expected to close early in 2Q14 4
Argenta and BioFocus ocus at a Glance Expert in integrated drug discovery from target discovery to delivery of clinic-ready candidates Focus on earliest stages of drug discovery, with extensive capabilities in medicinal chemistry, target discovery, and complex in vitro biology Significant in vitro therapeutic area expertise in respiratory, oncology, inflammation and CNS diseases Exceptional fit for CRL s in vivo expertise 5
Argenta and BioFocus ocus Client Base Client base includes relationships with leading global biopharma, mid-tier and emerging g biotech companies Multiple long standing, multi-year integrated drug discovery relationships with major biopharmas Provides enhanced revenue visibility Some overlap in global biopharma clients, but believe that there is an opportunity to increase the work we do based on the strength of our strategic relationships Beyond shared clients, CRL has a much larger base of clients which do not work with Argenta and BioFocus Intend to leverage relationships to introduce Argenta and BioFocus s extensive discovery capabilities 6
Argenta and BioFocus Scientific Expertise 380 employees; 340 scientists including 150 PhDs Located at three sites in the U.K. and Netherlands Scientists with an average of 15-20 years of drug discovery experience Majority with big pharma backgrounds Scientific staff has produced 2,700 publications and 1,800 patents Program and project management experience Over 50 drug candidates discovered and developed for clients Consistently top-rated by clients 7
Strategic Rationale a Adds upstream in vitro capabilities Expands value proposition for clients Drives profitable revenue growth and EPS accretion 8
A Full Service, Early-Stage CRO with Integrated Target-to-IND Capabilities Target Discovery Medicinal Chemistry Assay Development/ Screening Hit/Lead Identification/ Optimization ADME/PK In Vivo Pharmacology Safety Assessment Aligns exceptionally well with CRL downstream discovery services Engage with clients earlier in the discovery process Supports the ongoing virtualization of discovery across biopharma, academia and NGOs Large biopharma increasingly opting to outsource Want to use fewer research partners with greater capabilities Biotech increasingly virtual CRL Academia requires support to navigate the drug A/BF discovery/development process 9
Distinguishes s CRL from the Competition t o CRL Discovery CRO 1 CRO 2 CRO 3 Capability Target Discovery Has capability Target Validation Has capability via partner/alliance Assay Development Unsure if it has capability Screening Does not have capability HTS Biomarker ID/Development Biologics Structural Biology Fragment Screening Compound Libraries Natural Products Medicinal Chemistry Peptide Chemistry Radiolabelling Process R&D CADD In Vitro ADMET In Vivo DMPK Bioanalytical Services GLP Bioanalytics Preformulation & Material Science Formulation Development Separations Science Electrophysiology Histology Safety Pharmacology IND Support Services In Vivo Models (Dermatology) In Vivo Models (Respiratory) In Vivo Models (Oncology) In Vivo Models (CNS/Pain) In Vivo Models (Metabolic) In Vivo Models (Inflamm/Immunol) In Vivo Models (Cardiovascular) In Vivo Models (Infectious Diseases) Grant Application Support CRO 4 CRO 5 CRO 6 CRO 7 CRO 8 CRO 9 CRO 10 Key Unique discovery capabilities are a competitive advantage 10
Expands Value Proposition o for Clients Clients have been evolving the drug research and development model to improve efficiency and productivity They have reduced the number of suppliers in favor of forming larger strategic relationships CRL has been selected by a number of large biopharmas as a strategic partner Clients have eliminated molecules earlier in the process CRL s broader testing capabilities enable us to support clients earlier go/no-go decisions Argenta and BioFocus are two businesses with similar expertise Allow clients discovering drugs for the same target to do so with the knowledge that IP is protected 11
Drives Profitable Growth & EPS Accretion Net sales Non-GAAP EPS accretion (1) Partial year impact assuming early 2Q14 close 2014 (1) Adds ~6% to total sales ~$0.10 Implement revenue growth and operational savings plans through integration process in 2014 Expect those plans to generate synergies in 2015 and beyond Expect to update financial guidance with 1Q14 results, following the close of the transaction 12
Pro Forma Revenue e Mix RM Production 30% PCS 37% EMD 9% RM Services 24% Discovery/ Non-GLP 17% 13 Sales percentages are based on CRL FY 2013 net sales, pro forma to include Argenta and BioFocus.
Acquisition Summary Expanding market for outsourced discovery services Strategic acquisition supports trend to outsource full-service drug discovery and early-stage development Engage with clients earlier in the process and provide support from target to IND Meets client preference for outsourcing to larger CROs Enhances scientific expertise Distinguishes i CRL from the competition A compelling value proposition for clients to outsource capabilities which they formerly maintained in-house By increasing our importance to clients, believe that the acquisition of Argenta and BioFocus will enable CRL to drive profitable growth and create value for shareholders 14
Accelerating Drug Development. Exactly. 2013 Charles River Laboratories International, Inc. 2014 Charles River Laboratories International, Inc.