Biotechnology Business Focused on Charles Term Paper

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PK = Deltagen Inc.

PRXL = Parexel International Corp.

Pvt1 = Quintiles Transnational Corp. (privately held)

Industry = Biotechnology

As of 2005

Source: Yahoo! Finance, April 29, 2007.

Figure 1. Financial Performance: Charles River Laboratories vs. Deltagen Inc. And Parexel International Corp. - January 2002 to date.

Source: Yahoo! Finance, April 29, 2007.

Operating income for 2006 was reported by the company to be $188.2 million compared to $184.7 million for 2005 and its operating margin for 2006 was 17.8% compared to 18.6% for 2005 (Form 10-K, 2007). The company's 2006 operating margin rate was adversely affected by a $11.7 million (1.1%) charge due to the additional costs associated with expensing stock options; however, the negative impact was partially offset by improved margins in the company's PCS business segment (Form 10-K, 2007). Finally, the company's net income from continuing operations in 2006 was $125.2 million compared with $145.8 million in 2005; the company's diluted earnings per share from continuing operations for 2006 were $1.79 compared to $2.02 in 2005 (Form 10-K, 2007).

Marketing Considerations.

The company keeps a close eye on what its customers want and how best to deliver on that need through various initiatives intended to streamline its supply chain management function and to improve the marketability of its products. For example, throughout 2006, the company's sales growth was fueled by spending by major pharmaceuticals, biotechnology companies and academic institutions on Charles River' global line of products and services, which supported the company's development and marketing of new drugs and products (Form 10-K, 2007). The company's marketing initiatives have been heavily influenced by careful attention to what their customers are using their products for, and what steps the company can take to facilitate their production and delivery. In this regard, Charles River' latest annual report emphasizes that, "This growth in revenues was partially offset by customer focus on cost-savings. Future dRiver for our business as a whole are primarily expected to emerge from our customers' continued growing demand for drug discovery and development services, including increased strategic focus on outsourcing which should drive future sales of services" (Form 10-K, 2007, p. 4).

Likewise, in 2006, the company began construction to expand the capacity of its Northern California production facility to meet the increasing demand of its West Coast customers for models, preconditioning services and value-added model characterization services for their drug discovery and development efforts. To this end, the company's latest annual report notes that, "We expect to begin production in approximately one-half of this addition in the second quarter of 2007. Preconditioning services presents a significant opportunity for future growth, therefore, we intend to dedicate space at our major breeding facilities over the next few years to support our customers' expected increased use of outsourced preconditioning services" (Form 10-K, 2007, p. 5).

Ethical Considerations.

Many people become uneasy or even violent in their reactions to the use of animals in research, and the ethical considerations involved in these settings frequently become lost amid heated and emotional rhetoric that fails to take into account all of the salient factors involved. For example, in her essay, "Policy Issues in the Use of Animals in Research, Testing and Education," Orlans (1990) reports that, "Public policy about the use of animals in research in the United States acknowledges that animal experimentation is a needed part of science and that it must be conducted in accord with certain humane standards. National policies require registration and inspection of facilities, compliance with specified husbandry standards, and efforts to minimize animal pain, among other provisions" (p. 25). This author suggests that insufficient attention has been given to the ethical justification of research protocols involving animals, including standards to distinguish between acceptable and unacceptable animal experiments: "The degree of public concern over questionable or unjustified experiments suggests that public policy should more thoroughly address attention to justification standards" (Orlans, 1990, p. 25).

These ethical justification standards would likely relate to the purpose for which the research was being conducted. According to this author, biomedical research is used primarily for two fundamental purposes: (a) to add to scientific understanding of basic biological functions, processes, and behavior (basic research), or (b) to improve human or animal health by studying the natural history of disease, its pathophysiology and prevention, and by developing diagnostic and therapeutic methods (applied research) (Orlans, 1990). "These are important and worthy goals," Orlans adds, and suggests that, "Public attitudes are such that, compared with other uses of animals, the use of animals for research (both basic and applied) would be granted the greatest sanction. Presumably, the public would tolerate a greater degree of animal pain for the purpose of research than for either testing or for education" (emphasis added) (Orlans, 1990, p. 26).

This point is also made by Donnelley (1990), who suggests that, "At the heart of the wide-ranging and seemingly unending controversy over the use of animals in biomedical science, whether in basic or applied research, toxicity testing, drug production, or education, is one burning question: Are we humans ethically justified in such a use of animals, in general and in particular cases?" (p. 8). In this regard, Donnelly suggests that the bottom-line ethical issue involved in the company's industry is, "How we individually or collectively answer this question no doubt finally depends on our moral worldview, including the judgment of the relative moral status of human beings and animals" (p. 8).

In reality, though, even the most ardent critics of the use of animals in laboratory testing protocols have undoubtedly benefited from the practice at some point in their lives through inoculations and vaccines that would not have been possible without the use of animals for experimentation purposes, and the ethical issues involved become even muddier when the relative importance of humanity compared to that of the animals used for such testing are weighed. It is also likely that this relative weight would tend to shift according to how closely affected the critics are by the diseases that continue to plague mankind; for example, critics of the use of animals in laboratory testing for a specific disease might well reconsider their position in they themselves or their children were afflicted by the disease. As noted above, unless and until viable alternatives are identified, the ethical considerations involved in the use of animals for scientific experimentation will likely be far outweighed by their continuing contribution to the body of scientific knowledge that stands to benefit humans and animals alike in the long-term. From a broader perspective, though, Demaine and Fellmeth (2002) suggest that that long-term implications for the industry in which the company competes will be dictated by how the U.S. government decides legal questions concerning the patentability of preexisting genes and other biochemical products. According to these authors:

The ownership of preexisting genes and other biochemicals raises important questions about the scope and purpose of the patent law -- what it is designed to accomplish and how biotechnology fits within that design. More fundamentally, whether patent law is properly applied to products not independently created by a patent applicant implicates questions about the limits of intellectual property ownership, policy decisions about whether natural substances and processes should reside in the public or private sphere, choices about the value placed upon publicly available knowledge, and the microeconomic effects of limiting patents to some kinds of biotechnological innovations while excluding patents on others. (Demaine and Fellmeth, 2002, p. 303)

Therefore, to the extent that continues interest in the use of laboratory animals is fueled by the availability of patents for the end results of the scientific experiments in which they are used will be the extent to which there will continue to be increasing demand for Charles River Laboratories' products in the future.

Regulatory Issues.

As noted above, Charles River Laboratories is a leading global provider of live laboratory animals that focuses on the commercial breeding of guinea pigs and other rodents for scientific research (Wallace & Washburn, 1999; Carbone, 2004). Therefore, and not surprisingly, the company is subject to a wide range of U.S. federal regulatory guidance that stipulates how they must care for the animals in their charge and what steps must be followed during the breeding, maintenance and delivery processes. As a result, the company stresses the importance of its delivery methods, and regularly measures their corporate performance through customer satisfaction surveys. As Gil Slater, the company's vice president of customer relations function states:

Since live product is being transported, delivery is very important to our clients, but we discovered that in our business the method of delivery is actually more important than the date of delivery. We had traditionally used a combination of company-owned trucks supplemented by outside air freight. Customers expressed their very strong preference for delivery in our own vehicles. They were apparently concerned about the possible stress which test animals might go through at high altitudes where they thought lower temperatures could reduce resistance to disease. We responded by…[continue]

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