Obviously, there’s some fragile biotech companies that are worried about getting to proof of concept or getting the drugs at the clinics that are very — perhaps more careful about spending and working on a smaller number of assets. Having said that, historically and actually currently, our volume is much higher with biotech. So it’s an important client base for us. So you probably have a greater impact on spending with the biotech companies than pharma but again, it won’t be overnight. I do think they’re going to have to continue to see month-after-month improvement, and we have a high level of confidence, subject to the caveat that control over this. And there’s a lot of factors going on in this world that could affect people’s viewpoint, but it feels like the IPO market has opened up nicely.
VC inflows have been dramatic actually. M&A activity has been positive as well. And I think as you all know, our client base, whether it’s large or small, really has very strong assets right now molecules for unmet medical needs, that they absolutely want to get back to developing and getting those drugs into the clinic. So I think the overall environment is quite positive.
Operator: We’ll take our next question from Casey Woodring with JPMorgan.
Casey Woodring : I guess a two-parter here. First is, did you give how many months of backlog you have? I think at the end of 4Q, you had 12 months, and you talked about your normalized ranges kind of 6 to 9 months time frame. So can you walk us through that? And then you talked a lot about safety in the prepared when talking about DSA, but can you just elaborate on how Discovery fared in the quarter relative to your expectations?
Flavia Pease: Yes. I’ll just take the question on the backlog and then Jim can talk about Discovery. So the backlog is at 10 months. So to your point, Casey, I think, for 2 or 3 quarters of last year, kind of hovered around 12, trickling down a little bit. But I think we’ve been saying that to your point, historical norms were 6 to 9. So what we’re hearing from clients is actually that kind of reversed to the norm of they are booking 2 to 3 quarters in advance. So I think that tends — feels consistent with what we’re hearing from clients terms of what they’re working on and what they want to book ahead.
Jim Foster: So Discovery is an interesting one. So no question that’s been the hardest hit of all of our businesses by overall economy. And there’s a lot of dialogue around as funding continues to improve, how quickly will that come back? And it certainly will come back. Studies, to some extent, shorter. But unlikely to come back first. A lot of our pharma clients still do that work internally. And as I said earlier, what we think will come back first are pre-IND work for drugs that have already been developed but haven’t been filed yet as opposed to post-IND work. We feel strongly they’re going to get back to funding that more quickly. Discovery is a relatively small percentage of our DSA portfolio. So we’re focused primarily on Safety Assessment business in terms of our growth rate.
And it’s unlikely to be the canary in the coal mine that we talked about so often, just because as you look at the whole drug development process, going to be much more important for them to get stuff into regulated safety trials. So we like our discovery franchise. We have important assets that clients, large and small, continue to use but have used in larger measure historically. As funding becomes more sufficient and they’re funding the assets that have already been developed, obviously, the long-term health of our client base is premised on their ability to do appropriate and impactful discovery spending. So still slow, still impacted, still small. We’ll let you know as soon as that changes, but clearly has had the greatest adverse impact from the overall economic situation in the country.
And I think our competition across discovery is in exactly the same place.
Casey Woodring : That’s helpful. And maybe just if I can sneak one more in, just because we haven’t touched on it, is on the manufacturing rebound in the quarter. It looks like each business there is seeing nice growth, and the segment came in above Street expectations. Curious if you think there was upside to the guide in manufacturing this year just in terms of how quickly that business has began to turn to start the year?
Jim Foster: Well, that would be nice. That would be nice. We certainly hope so. We certainly don’t have that in our guide. It certainly would anticipate, necessarily anticipate that, but we’re very pleased that we’ve had strong growth across the entire segment in the first quarter. You see that people are back to business in biologics, and we have a very strong franchise there. You see that folks that had big inventories of disposables. I have worked through those in our microbial business and the CDMO business to a distinct pleasure as a double-digit grower that we’re getting a lot of traction as people recognize the quality of our assets, and we have some commercial drugs that we’re working on and the facilities are — have been expanded nicely.
So at a minimum, we would expect that business to continue to be a strong one with — I think we’re saying now mid-single-digit growth for the year with significantly better operating margins, although those are relatively easy comps on the CDMO side. But all 3 of those businesses will continue to improve. We would have to stop short, particularly at this point in the year saying that there’s upside to those numbers.
Flavia Pease: Yes. And I think to Jim’s point, we’ve modestly adjusted, right? I think the guidance in the beginning of the year was low to mid-single digit, and I think we’re now saying mid-single digits. So we raised a little bit the bottom end there. But I think that’s a reflection of the strength of the first quarter, but we don’t want to get ahead of our skis, as Jim said, to say that there is upside to the guidance that we just provided you today.
Operator: And we’ll take our next question from Tejas Savant with Morgan Stanley.
Tejas Savant: Jim, one quick one for you on NHP pricing actually. I know you talked about pricing more broadly here, but I think last time, you guys have called out about a modest $15 million to $35 million benefit in the guide for your ability to reach pricing in light of competitors being higher. Is that still the right view? Or is that now essentially off the table in light of those strategic, selective pricing adjustments you alluded to?
Jim Foster: We would say that that’s still the view. Competition had prices significantly higher than we. So they had to come. They’ve had to bring their prices down. I think it gives us a little bit of pricing power actually. So we’re also really pleased with our sourcing of NHPs, particularly given the acquisition that we recently made.
Flavia Pease: Yes. And I’ll just add. I think NHP pricing is still positive in the first quarter. We are seeing it come down from the peak, if you will. And I think as I’ve been saying for the last couple of quarters, I think some competitors are signaling to significant decreases. I think it’s more because they’re coming down to our level. So we still experienced year-over-year, a modest increase in NHP pricing, although as I said in Q1, it is modestly down from peak levels.
Tejas Savant: Got it. That’s helpful. And then a couple of unrelated follow-ups. One on the CDMO piece, Jim, where is capacity utilization today? And what’s embedded in the guide in terms of where you finish the year just in light of the ramping backlog of work are? And then on your comments on China. Are you seeing any sort of widening in that price disparity versus the Chinese CROs, particularly outside of China as we look to defense share at all? And any early sort of green shoots from the stimulus that just went — I mean, that was put out there in March, in terms of how that could benefit local demand in China into your end or perhaps ’25?
Jim Foster: So we’ve added an appropriate amount of space. I guess, I would say that the CDMO manufacturing facility in that is lots of audits by clients and regulatory agencies. So we’re in very good shape to accommodate the client base where we have already a couple of commercial clients. Hopefully, we’ll have more. And we’re also getting additional clinical clients I’m dealing with some of those clients myself. The feedback on the facilities has been positive. So obviously, we’ll work hard to stay ahead of that, so we have sufficient capacity. But just had a call this week, in fact, that — and the feedback from the audit team that had gone there was really positive. The disparity with Chinese prices for some things has been an issue and has been beneficial to the Chinese marketplace given some of the impending legislation that’s likely to change.
And folks will look for different places to do the work, and they’ll have to get it, too, for they’ll have to get quality work, but lowest price point. So we’re working hard to have our portfolio be have appropriate options for them. Our Chinese business, which is relatively small and not entirely, but principally small animals, has done well given the infusions of capital there. Unlikely to be impacted by any sort of U.S. legislation since we do work in China for China, and anticipate continuing to do that. So China is — continues to be a good place for us from a growth and margin point of view.
Operator: We’ll take our next question from Patrick Donnelly with Citi.
Patrick Donnelly: Jim, maybe one more on the DSA side, just in terms of the pace of cancellations. I think in 3Q, they got a little bit better, 4Q they stepped back down, 1Q got better. How are you thinking about just the trends there? And I guess the million-dollar question is, when do you think we can get back to that kind of 1.0 book-to-bill? What’s the visibility? What did cancellations trend like in the quarter? Certainly, if you have any April thoughts, that would be welcome.
Jim Foster: Yes. So everything that happened in April is embedded in our guidance. So I don’t want to cut it month-by-month. We’re pleased with what’s been happening, the moderation and decline of cancellations. By the way, as you know, we always have cancellations. I mean all we can say is what we said, which is that we have to see a reduction in cancellations for some sustained period of time to have confidence that it’s meaningful and will continue. We believe that, that’s the trajectory that we’re on, but we have to. We have to experience that for that to be beneficial and in terms of our backlog. So it’s an almost impossible trend to comment on what’s happened historically is not necessarily relevant. You get different market conditions right now and different economic conditions and totally different competitive scenario, particularly on the Safety Assessment business.
