I think we have to — have the leadership position there. I think that, that — it’s not very complicated by the way. As you know, we have this whole — the whole being able to identify the genetics — genome — the specific animals is relatively straightforward science. It’s a lot of animals, so it’s not trivial from a cost point of view. But I think we can do it cost effectively and whatever it is other going to pass it on. So we still, I would say, in the background, Dave, but we’ll get back to it at some point, for sure.
Dave Windley: Got it. Thank you.
Jim Foster: Sure.
Operator: Thank you. We will take our next question from Justin Bowers with Deutsche Bank. Your line is open.
Justin Bowers: Hi, good morning, everyone. So with booking — a two-parter for me. With the bookings stabilized and sort of if I look at the revenue and safety assessment for the first three quarters, does that seem like sort of a good run rate like on the go forward? And I just — if I look at what the guidance implies for 4Q, for example, and we adjust for the extra week last year, it sort of gets at DSA revenues flat, plus or minus Q-over-Q. So that’s the first one. And then just with the improvement in the bookings that you’re seeing, and I understand flow of cancellations. Is there any way to parse that out in terms of the nature of those cancellations and how it’s sort of improved? Is it like — is it more less of the empty rooms versus programs that are in flight being canceled? Just any additional color there would be helpful.
Jim Foster: The reduction cancellation is a good thing. I hope people are getting that. Because of capacity limitations, demand, availability of everything, including NHPs, and funding seemingly being better whatever last year and the year before, I think we had clients that were really worried that they wouldn’t get a slot. And so they booked way out, which is some of that was good news and some of that was just booking a slot without a study. So that’s disruptive, particularly when you get to the point of planning to set aside a certain number of animals and a certain cadre of staff, and then people can — and yes, they have a penalty when they cancel it. That was really great. So I think the normalization of cancellation, which, by the way, isn’t always — cancellation slippage is an obvious — is really a good thing.
We’re getting back to probably pre-COVID levels. And as we said a couple of times, it’s always been there. And that’s in the calculus of our forecasting and our guidance and how we plan for headcount and allocation held. So I think that’s actually a good thing. I would stop short of sort of trying to quantify what the growth rate of the Safety Assessment business is on a forward-going basis. It’s a business where — we continue to be the market leader. We continue to get some price. We continue to get a significant amount of volume. I think we just said that we have a lot of stuff moving into this post-IND phase, which is fine, but we want both. Obviously, we’re doing some IND work as well. But it’s important that we have both long-term studies and short-term studies.
And I think what’s happening is we’re going to have a slow normalization of demand. We have a second quarter where biotech funding is pretty good. VC funding is fabulous, a lot of money coming in from pharmaceutical companies. And so companies, as you’ve heard us say before, that have few drugs for unmet medical needs will get funded, and they don’t all have to come to us, but lots of them will come to us. So, we feel optimistic about the demand going forward. As I said earlier, we stand behind those three-year guidance numbers that we gave at our Investor Day. The sort of speed and cadence of all of this is not particularly clear. It hopefully will be a little more clear as we finish this quarter, and talk to you folks in February about specific guidance for next year.
Flavia Pease: And we can maybe follow-up with you later on the DSA revenue for the fourth quarter, just — to make sure that we get the math correct. When we provided guidance by segment, it’s on an organic basis. And so the DSA, at high-single-digits for the year, leads the fourth quarter there, would imply probably a negative growth in the fourth quarter. And again, to remind everybody, we had an extraordinary fourth quarter in 2022 with 26.5% growth for DSA. So there’s a bit of comps there that impacts it. So I don’t know if it’s the impact of the 53rd week when you did your math.
Justin Bowers: Yes. I was looking — I was referring more sequentially versus year-over-year, but happy to work through that offline.
Flavia Pease: Sequentially, you’re right. It should be flattish.
Justin Bowers: Okay. Got it. Thank you.
Flavia Pease: I thought you were talking year-over-year.
Justin Bowers: Yes.
Operator: Thank you. We’ll take our next question from Dan Leonard with UBS. Your line is now open.
Dan Leonard: Thanks for taking the question. I want to make sure I fully understand the direction of travel here in DSA, and I appreciate all the color on gross bookings. But specifically, I’d like your thoughts on at what point is the continued weakness in Discovery impact your outlook for safety?
Jim Foster: Hardly at all. So I understand why you asked the question. So our strategy and goal is very much that Discovery is a feeder for safety. So that’s obviously the essence of your question so. It’s a trivial part of the DSA revenue right now. Although we love the business, and we have good science and good parts and pieces, we’re in an air pocket right now, but that’s going to be transitory. To sort of refresh my answer to your question, if Discovery is rocking that’s beneficial to our safety business, particularly if we if we hold on to work. And just generally speaking. But I would say that it’s kind of a tale of two cities. Our safety business is actually in this kind of funky economic environment is performing extremely well.
We’re getting price and share and lots of big studies and our capacity is well utilized when I say capacity, both people and space. So as you think about the future, which I assume you are and if you assume that Discovery sheer pocket continues, and I don’t know whether that’s true or not. It will matter. It won’t really fundamentally affect the size and scope and growth rate and our margin profile for the Safety Assessment business. And if it comes back strong, which, by the way, can on very short notice or no notice, it just would be beneficial and add some incremental revenue to the sector. Also has I guess last also has good margins. So I don’t want you to forget that even though it’s slower than we would certainly like the Discovery business has gotten nicely profitable had wonderful growth rate last year, the year before and the year before that.
And I think we’re holding our own very well. But it’s just — it’s very simple. You’ve got clients, big and small, emphasizing post-IND preclinical work and clinical work just because they have to get some drugs to market to generate more revenue. That’s — and that’s sort of an always-always. But if they don’t spend money on discovery, which, of course, is what they do, what biotech only does, they don’t spend money on Discovery, then they’ll have nothing whatever, two years, three years, one year from now in the clinic. So it’s not our opinion. It’s a certainty that the pendulum has to swing back a little bit difficult to call because it’s definitely related to funding and the overall economy. And I think it’s related to that much less being related to the strength of the scientific modalities, which are going to be quite powerful.
We got some really great drugs with these companies we’re working on that are better life saving. So we’ll watch you. We’ll let you know as soon as Discovery begins to come back. And as I said a moment ago, it will come back sort of surprisingly fast. Studies are short. We don’t give a lot of notice on them. The turnaround time is pretty good, so is the pricing.
Dan Leonard: Appreciate that clarification, Jim. And if it’s possible to ask an unrelated follow-up. I was hoping you could frame proportionately how much of your manufacturing business is driven by commercial products versus early-stage products that might be more subject to the reprioritization that you talked about on the call?
Jim Foster: Good question. So the CDMO business is all pretty much all clinical. So that’s not manufacturing that stuff. So it’s a little bit different than the rest. Yeah, I mean, a big piece of microbial is to lot release for commercial products. So yeah, for sure and less stuff goes through the pipeline as less stuff is approved as they’re trying to spend money in the clinic and maybe manufacture less of their other products. It slows down a little bit. Similarly, with biologics, that’s also — we have to test those drugs before they go into the clinic. So just so I don’t confuse you, yeah, a lot of stuff is focused on the clinic and going into the clinic, but less than they would otherwise like to go into the clinic just because they care.
