CEO Jim Foster Reflects on his Remarkable 50 years at Charles River

Thank you, Mary. Nice to be here.

I think in a lot of ways, a lot of things have changed and a lot of things haven't changed, I guess I should say. What hasn't changed is Charles River has always been steeped in the science. We've always been about the science and so I think all of our clients know that we do exceptional work. We're working on more than 80% of the drugs over the last 5 years that are approved and probably at least 80% of the drugs that are unapproved, which of course is unfortunately most of them. I think what's changed is the scale and depth and sophistication and geographic reach of our portfolio. What hasn't changed is sort of the basic ethos of the company which is about integrity and science and responsiveness and internally sort of having a society and a culture where we have each other's backs and it's an extraordinary amount of teamwork. One of the things I'm proudest of is that we have been able to maintain a relatively small familial culture. It feels like it's a private business and that management team are the owners of the business and most of our management teams act as if they're owners. I always tell them to try to think and make decisions as if they were owners. I think most people try to do that. So that's powerful. What I hope we don't become as we get larger, which of course we will get larger, is a large sort of impersonal political company that often happens with scale that's just not taking advantage of so much rich thoughtful input.

Glad to hear that.

So it was a bit insane to do them both at the same time. In retrospect, I would say that we didn't realize the insanity of the decision, but it was a very exciting time. A lot of people may not know what I'm about to say, but Charles River has had five structural iterations. So, it was a small family-owned business, then it was a public company, small family-owned business for almost 20 years, then it was a public company for almost another 20 years. Then, we sold the company to Bausch & Lomb. We were there for 15 years. And we did a management buyout in '99 to buy it back and of course we took it public again. So that's probably unique. I don't know if it's absolutely unique but I bet it is. Those five structural iterations are interesting. Bausch & Lomb was a great company. I would say that the fit was unusual and they sold Ray-Ban sunglasses and contact lenses and microscopes and solutions for contacts and they had a reasonably volatile financial quarterly situation. So non-synergistic parents, in other words parent companies that are in disparate businesses different businesses than the subsidiaries which was a situation with us that became problematic over time and so it wasn't a good thing for us to stay with B&L. So I tried for years to try to do a leverage buyout and to get out of there. Finally the CEO who had done the deal to buy Charles River was replaced and the guys said that they were focusing on healthcare above the neck. So I called him and I said that doesn't have anything to do with mice and rats does it? And he said nope. I said then I want to buy the company back from you and it took him a while but he ultimately said fine. So that was an exhilarating thing to do a leverage buyout. Lots of people were interested in that and then we became an independent company. It was I don't know if it was a gutsy move but it was a necessary. We emerged from B&L as an independent entity. We took the company public nine months after we were private. So we were private for only nine months. Then we took it public and then we began this process of lots of M&A, a lot of acquisitions both in safety and discovery and obviously a whole bunch of other areas to build out this portfolio. So a little crazy to do it all at once but definitely the right strategic thing to do. I'd do it all over again. We actually bought and then in 2004, which was 5 years later, we bought a big public company which is our huge facility in Montreal was the principal one and the other one in Edinburgh. And that took us from kind of a third tier player to a first tier player. And we began to compete one-on-one with Covance who was the biggest player at the time, now owned by LabCorp, now about a third our size.

I guess the two fundamental changes I would say are particularly if you look at toxicology that was done internally by all the pharmaceutical companies. They did it themselves. They did it well. They figured out that we could do things more quickly. We could do things lower cost than them doing it themselves. Probably 30 to 50% lower. That's a number one change. And number two would be that there's just a huge number of biotech companies right now. Thousands. We have thousands of biotech clients that use us or someone like us to do their drug development work and the safety assessment work. So that's changed dramatically. So there's a huge amount of work being outsourced. I don't think there's a lot of negatives. I mean, the FDA can be complicated and things can be slower than we all would like and they're slow for a reason because the FDA cares about drug safety and of course we're in the drug safety business. So, I think that's fine. I think the competitive dynamic for us is probably the best it's ever been. Not to denigrate any of our competitors, but we're just larger and just have a much more powerful portfolio. And so, our goal has been for a long time to start with the clients as early as possible in the drug discovery process. Sometimes we help them find the target, sometimes they've developed a drug against the target. We help them characterize the drug. Sometimes we just take the drug that they've characterized and develop it for them or all of the above. But as the drug progresses, we want to stay with them and they want to stay with us because it slows them down to have too many companies working on a drug. And everything's about speed to market. So the faster we can work for them, the more we know about the molecule that we're working on. And I would say without overstating our importance, we at least know as much about the molecule as the client and in some cases maybe more because we have the juxtaposition and comparative analysis of thinking about well does that drug look like a hundred others that we worked on that made it or 100 others we worked on that failed. And so when we're working on something that looks like something that failed because the toxicity was too high or actually wasn't effective, we say to them, you know what, you ought to not spend time on that one. That's just not a good use of your time or your money, but this other drug that you're working on, we've worked on a bunch like that that were successful and you got to put more effort there. So we have an increasingly more important role. I would say that's the other thing that's changed. More of this has been kind of outsourced to Charles River and companies like Charles River and I think that will only intensify over time that more and more work will go to us and companies like us. So, we're obviously proud of our role. We're helping to make people healthier and we're helping our clients to get drugs to market as quickly as possible. And we always say that we're the bridge between our clients and patients.

So, we were able to stay open and some of it's just good luck for what we do. So, most, not all, but most of our employees are PPE'd up. So most of our employees, so everyone in a lab whether they're using animals in the lab or not are gowned up masked and gloved and have some sort of overall. Lots of people shower in and shower out and so I heard this from lots of employees felt safe. Many of them felt much safer at work than they did at home because you had this insane virus floating around. Nobody really knew what it was or what the cause would be or how long it would take to get a vaccine. They got a vaccine in a year and before that the fastest vaccine ever was in four years. So that was really really rapid. So just the nature of our work for 80% of our employees was that they were going to be protected in work and so that was great. That was really beneficial. So with almost no exception, we just worked right through COVID. And that obviously was important not just for our employees to have work, but for our clients that still wanted to work on their drugs to be able to send stuff to us and have us say we're open as opposed to say we're closed. So we had some very small competitors I know in the animal business that weren't that didn't stay open and they didn't close permanently but they were shuttered and a couple of small ones in toxicology as well. So, that was good luck and just kind of the nature of what we do and what I did which I was happy to learn was somewhat comforting but I only have one speed which is straight talk. So I did the best I could to just communicate effectively as possible with what I knew and if I didn't know anything more than what was in a public press just to say that. But we just tried to chill and go about our work and I think that worked well for us just in terms of people's confidence and not overreacting to the situation.

I mean, several things. I think it just takes too long to get a drug to market. It's now 12 to 14 years. Used to be when I first started it was like seven to eight, which was still a long time. By the way, the patent starts to run when they file their INDs. So they eat up a bunch of the patent life before the drug is even approved, which is horrible. And the total amount of R&D dollars spent in the US, it's some crazy number. It's over 100 billion a year. And you'd think that lots more drugs would be approved every year. And it's kind of between 30 and 50 drugs a year. It's better than 20 drugs a year, but why isn't 100? Why isn't 200? Why isn't 500? So, it's a very haphazard process. One out of still, it's still one out of every 10,000 compounds gets to market. That's pathetic. And there's not like a straight line to get there. So, I think that's the biggest issue. The FDA is now saying that they want to do everything they can to speed it up. It's not the first administration that said that. AI should help. So theoretically at least AI should help design better preclinical trials, like Charles River. Design better clinical trials, identify the biomarkers that take you from preclinical to clinical so you can track them. And you should be able to eliminate, just to go back to what I said earlier, but you should be able to eliminate more effectively drugs that kind of look like lots of drugs that failed and not work on them. And conversely, ones that look much more promising, spend much more time on those. So, if that works well, you should be able to reduce the overall cost of the drug industry, speed up the process. For Charles River would actually mean more drugs going through the pre-clinical pipeline. But I do think that over time particularly as AI speeds up that should accelerate drugs getting to market and so if you can take a year off or two years off or five years off or whatever that should generate more drugs getting into the market, more drugs for us to work on and more drugs getting into the market. So I think we're on the sort of precipice of that. Probably will happen more effectively over the next decade. I don't think it's happening tomorrow or next year. But there's lots of focus on that.

I hope that we continue a couple of things. I hope that we continue to feel small as we get larger. So what I said earlier about this sort of familial culture, that the teamwork which is everpresent all across the company whether you're working at a team of five people or a site with a thousand people or a company with 20,000 people it's just teamwork all across company. We've had a couple of challenging years and without me decreeing it or without any sort of the management decreeing it, everybody has just pulled together and worked hard with less strong demand than we would have liked. Particularly for lack of biotech funding has been a big issue for us and yet we've been able to organize ourselves effectively. So maintaining that culture of teamwork of civility of familiar nature and having each other's backs I think is critically important. I would hope that that ethos and that cultural norm would continue. When we do M&A, when we buy companies we look for those things. We look for how they treat each other. What kind of culture is that? Not just they make money and not just that they have great science. Those two things are important. But is it a culture that's going to fit with how we interact with each other. And when we see cultures that are disparate or very different or not very civil to one another, those are deals that we don't do. So, pretty quickly you can be in the company for a half hour just from the minute you check in with whoever the receptionist is and whoever meets you and takes you to wherever you're going. Can just tell what it feels like by people have a smile on their face. Do they say hello to people when they're walking down the hall? When they go into a lab to explain it to you, do they introduce the people in the lab? Do they let those people review things with you or do they just kind of talk over them? So you can learn a lot very quickly and I think those things have been the kind of essence of our success and I'm proud of the fact that we've been able to maintain that. We've done sort of 50 pretty big acquisitions and if you had another 20 smallish ones you probably 70 acquisitions in the last couple of decades. It's a lot. They haven't all worked. They haven't all been perfect, but they've had several of the same cultural norms that great science, leaders in their field, meritocracy, and cultures where people are the most important thing.

What am I looking forward to? So, I never thought I would actually get to this point. So it's a little bit surreal. I would say having been this is the only place I worked and I've been here for 50 years, which is older than longer than most of the people age who are listening to this. And I'm thrilled to stay on the board. So that's a nice glide path for me to do whatever I can to help with the transition with my successor, but also to just kind of focus on the things that we've talked about on this conversation, which is maintaining the culture and weighing in on additional acquisitions that we'll probably do in the next two or three years and weighing in on succession as we continue to grow our management ranks and maybe do some things geographically. So, I'm thrilled about that. I have a lot of not-for-profits that I'm already involved with. Some are in the sciences, some are in the arts, some are in neither. So I want to do a lot more of that. I'll do some philanthropic things. I'll definitely make some investments, probably seed investments to the first stage of investments in some biotech companies. Probably travel a little bit more and I'll probably focus on trying to stay as healthy as possible. It will be interesting not to have every hour scheduled, as I have for the last 50 years. So, I think that will probably feel good. So, I'm going to try not to get overly booked and overly scheduled by the same token. I certainly want to stay busy. So, I'm not worried about staying busy. And so I'm actually looking forward to the next chapter and even some of the unknowns that will bring with it I think can be invigorating and different.

My pleasure. I really appreciate you taking the time to talk to me. Thanks.