Elizabeth Anderson: I was hoping you could talk a little bit about – I know you talked about the biotech demand environment and sort of versus midsize. Could you maybe specifically talk about some of the pharma demand? I think one question people have some of the restructurings that are going on, which seems to be maybe disproportionately impacting preclinical that seems to be a sort of question. And then secondarily, can you talk about any sort of share gain opportunities during the year? Obviously, there have been some bills in Congress that might potentially impact some of your competitors or willing of some sponsors to work with those competitors. So any comments there would be broadly helpful as well.
James Foster: Yes. So our pharma business in 2023 was particularly strong. we have had a long legacy with the pharmaceutical industry. So that is not necessarily new, except sort of the scale and rate and depth and longevity. And when I say longevity, I’m just talking about long-term contracts that we have with these two to five-year contracts have been ticking up really, really nicely. So we have an amount of our work locked in for multiple years with escalating price points that are already pre-negotiated. And increasingly, we are seeing Big Pharma by very thoroughly across the portfolio. So many of them buy everything that we sell. We also have several Biotech companies that do all of the, let’s say, pharma companies to have the safety work with us some that do most of the safety work for us and even the ones where we are not necessarily – that is just a few of them where they do a lot of work internally.
I think where the default. So I mean, obviously, pharma is extremely well financed. It is probably the best thing you can say about the very well financed, placing bets with multiple biotech companies that have become the discovery engines. You have seen lots of acquisitions of drugs or geography to sell the drugs or entire drug companies almost daily since the beginning of this year with big pharma. I do think that is going to continue. And we always hope that one plus one is more than two for us. But certainly, if we are already doing work for the target and the parents we will hold out of that work. Having said that, biotech for the last decade has been a larger and more aggressive driver of growth. So let me just unpack that. So while we have much larger such a large amount of revenue that we are selling to pharmaceutical companies and they are very, very big clients.
Obviously, we have many more biotech clients, none of whom have internal capacity to do the type of work that we do. So without overstating our importance, they are very dependent on either us or some company like us to move the drug through preclinical get their IND filed and ultimately gets into the clinic. So pleased with our sell-through, particularly in pharma and as the capital markets strengthen, which they will. I mean it is – we all have our own [progasication] (Ph) on when that is going to happen, but they will little bit happening in January as VC monies continue to be robust. And as the pharma companies continue to bet on Biotech and as the modalities continue to strengthen things like cell and gene and immunotherapy. The biotech will continue to ramp up more aggressively with us again.
So we like our client base pretty much across the board. We like the share percentage in the numbers of drugs we work on, which is over 80% of all the drugs approved in the U.S. for the last – more than the last five-years and probably on the increase. On the share gain question, I do think we have enormous opportunities to take share in virtually everything we do, certainly in biologics, certainly in the CDMO business certainly in discovery, either and – where we have the principal amount of share. Some of that is as you said, is probably bolstered by new legislation. I think some of that is just supported because of our scale, the depth of our portfolio. in the fact that every client that we work with is very interested in speed to market and the nature and both of our portfolio helps them get things at least to the clinic faster.
So we should be able to pick up meaningful share as the clients are more comfortable and less cautious and less conservative with the spending patterns, which we think will be a sequential movement through the back half of the year.
Elizabeth Anderson: Got it. And one1 additional follow-up question. The 29,000 of average NHP pricing that you cited at your Investor Day, is that still the right way to think about sort of the pricing level for 2023 as a whole?
Flavia Pease: Yes, Elizabeth, it is Flavia. I will just say the numbers we shared in the call related to NHPs, whether it is the price, the price gain over three-years, the units, the amount of NHP work as a percent of Safety’s revenue, they are all still – with the year-end results, they are all still similar. So there is been no significant update from what we shared with you before.
Operator: And we will take our next question from Dave Windley with Jefferies.
David Windley: So on the Noveprim, I was trying to quickly scroll back through the deck and unable to find it. But I think it would be helpful for me certainly to understand a little bit more of the mechanics of how much revenue you expect that to contribute and what the margin structure of that business looks like relative to your comments that, that is providing I think you said most or all of the margin lift for the company in 2024. And then I have a follow-up.
Flavia Pease: Yes, I will take that. So just to reiterate, we expect Noveprim to add between $40 million and $50 million of top-line revenue, which will obviously impact reported revenue but not organic. We also expect that Noveprim will add about $0.30 of EPS, which, if you do the math, is about 50 basis points of margin expansion. And just to articulate a little bit how the construct will work at this point in time, even though Noveprim is definitely a move that will allow us to have additional oversight control and eventually higher volume of NHPs in support of our safety business. In the short term, the majority of the financial impact will be reflected in the RMS segment, where that external revenue will be reported. And so that $40 million to $50 million of third-party revenue will also increase the RMS margin approximately 200 basis points.
If you think about the benefit for the Safety Assessment and DSA segments it is going to be relatively small, especially in 2024 as we obviously already have safety stock of NHPs from Noveprim and other suppliers in the case of Noveprim that were acquired prior to the acquisition. So it is only once we start having models that go into studies that benefit from Noveprim being consolidated into Charles River that will start having an impact in the DSA margin, and that will be impacted by timing. So the majority of the impact in 2024 will be reflected in the RMS segment.
David Windley: Understood. Thank you for reiterating some of that. My follow-up question is around I guess, more general pricing environment, some of your competitive – I guess a couple of different dynamics. One being some of the competitors, albeit smaller competitors have also addressed cost structure in a way to significantly lower their costs and have expressed at least to me, a willingness to be more price competitive on studies and another angle on this being to the extent that small biotechs might evaluate a trade-off between Charles River or other providers in the Western world or an Asian provider at a much lower price in the Eastern world that primate prices in China have dropped a lot, which makes the cost structure of those competitors significantly lower as well. And so the general question here is, how much price competition is seeping into the safety assessment market as a result of these lowering cost structures.
James Foster: Let me take that one. So Dave, I would say that all of our competitors and the smaller they get, the more this is factor compete with us primarily on price. And so to some extent, that is an -. And we accept that and clients that either can’t afford it or think we are too expensive or running out of cash or whatever or prefer the competition, whether it is East or Western can and will go there. And that is okay. So I mean, that is an -. The Chinese capacity – there are certainly some small, let’s say, U.S. biotech companies that do their work in China. There is a limited amount of capacity in China. So that will happen. They will come and go. And yes, the cost of labor is lower and the cost of everything that is lower there.
And I won’t comment on the quality of the work, I mean they will have to make that determination themselves. We try to be rational and appropriate and professional with our pricing, as I said earlier in my comments, we have a lot of long-term contracts with big pharma for some reason, most of them came to fruition in fiscal 2023. So they have all been resigned. The pricing is locked in. So that is a significant amount of what we do. I do think that folks come to us because our portfolio is larger. Our proximity is closer. The depth of our science is better. And our scale is better. And of course, if they know us well, the presumption that were too big and too expensive is really not true. So we will use pricing as well in certain instances.
And I would say those just kind of fall into a few categories, which is to protect share in big – just a big clients that we have that is out shopping specifically for price. And so we may have to do something there. We certainly will be price aggressive if we are going after a big sluggish share with a client that we either don’t have at all or have very little. But we often pass when the price point just gets too low because it is going to be at cost or below cost or a trivial operating margin, and it is just not worth it given the complexity of the studies. I guess one other thing I would say is that where – I don’t know the exact numbers these days, but it is probably in the high 30% range what our market share is. While we are pleased and proud of that, I do think our share will be much larger over time.
