Great, I think we can get started. Kallum Titchmarsh here from the Life Sciences team at Morgan Stanley. Really pleased today to be joined by Jim Foster, Chair, President, and CEO of Charles River Laboratories. Just before I get started, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. Jim, thanks so much for being here. Quite a year. Maybe you could talk us through how 2025 has played out so far versus your initial expectations. Beyond the numbers, what are the key accomplishments you're most proud of and perhaps flag some of the challenges as well you've encountered? Good to be here, as always. We had a very strong first quarter, which we were really pleased with. We had some pent-up demand by big pharmaceutical companies, so they were very strong in the first quarter. We had a strong second quarter as well, just in terms of kind of beating our guidance. It's a little bit of a tale of two cities. Big pharmaceutical companies, we have greater stability with them for sure. Same with big biotech and mid-sized biotech. I'd say that the smaller biotech companies are working hard to try to access capital, which is really sort of difficult. Just given the demand curve, we've been spending some time over the last few years, but this year as well, in appropriately reducing our cost structure. We're making some progress on that. It's going to be sort of $75 million a year for several years. We did buy back some stock early in the year. We're in the middle of this sort of strategic review, precipitated by a new shareholder. We're working hard at that as well. It's all about trying to calculate when the demand is coming back. It's certainly not an if. There's a little bit of cyclicality, I would say, in this business, in this industry. Pretty much everything we do, very few of our clients do internally. They just don't have the capacity, the desire, the interest, or the scientific history of doing that. We're really critical in terms of getting drugs to market. We know that the demand is to some extent being pent up. I think our capacity is in a pretty good situation, a pretty good condition right now to take on new space. We've been very judicious with our CapEx over the last couple of years, just kind of watching it and not adding incrementally, given the sort of slowdown in demand. It's all about demand for us. We had a really strong 2021, 2022, and most of 2023, and things sort of slowed down the last year and a half. So much of that was premised on access to capital by the biotech clients. Great. A lot to dig into there. Maybe let's start with DSA. I think a lower bar here heading into 2025, but you've been able to come in nicely ahead of street numbers for Q1 and Q2. You've then begun to increase staffing levels thanks to the kind of improved demand outlook there. Maybe just give us a bit more color on what you saw supporting that more optimistic view. Yeah. We've obviously been very careful with our staffing. That's a big organization for us. Over the last 18 months, we've pared that back commensurate with what we thought the demand would be. A lot of this was driven by big pharma, as I said a moment ago. We are operating right now well in excess of our annual operating plan for fiscal 2025. We're obviously delighted with that. We need to staff up a little bit to accommodate the current demand. Physical capacity is one thing. We can't do the work without the people capacity. That's what we're up to. Great. On the large pharma side, that seems to be stabilizing. You've seen an increase in proposal activity from this group. Maybe just talk us through how you think sentiment is from this group of customers amidst all the policy dynamics that we're seeing at the moment. Yeah, it's pretty interesting. We don't hear much from our clients about what is or isn't happening in Washington. We also don't hear from them much about price. I think focus on price has been there kind of with every administration. I do think that the drug companies are cognizant of that. I think that that's part of the calculus of running their businesses. I think they anticipate that for me too drugs, there'll be pressure on drug pricing, for novel drugs to deal with unmet medical needs. I think if there's going to be innovation, they have to be paid properly for that. If they amortize the cost of all the drugs that fail over the few that make it. We don't hear a lot from our clients about that. It's difficult to tell whether or not that's because it's kind of an always-always with them that they have these sorts of pressures or they're just taking it in stride. We have a lot of innovation coming out of NIH historically. The latest report from the NIH is that it's likely to be, the budget's likely to be flat. I think that's a really good thing. A lot of that stuff ends up in the hands of big pharma or the VCs to develop new biotech companies and compounds. Probably the drug companies are trying to wait till things settle down. There are lots of changes out of Washington. I think they'll obviously hire to work trying to understand what's really going to stick and what the implications are for them. Great. On the proposal front, have you noticed any changes in the competitive dynamics? When you're at the table, are you seeing more or less competitors there with you? The competitive landscape in the universe hasn't changed at all, just in terms of numbers of players. I would say that we have more competitors, particularly in our safety assessment business, which is our largest business. We have relatively small competitors, almost all of whom are using the price card. We're seeing a lot of that. Our clients, the clients who are concerned about their funding, probably are paying a lot of attention to that. Some work has gone to China. That's new and tends to be increasing somewhat. I don't think we get to bid on a lot of the Chinese work. I think it's mostly with regard to smaller competitors. The work in China is a dramatically lower price point. The work is probably not great, but it's good. It's probably good enough. I think clients that want explicit science, really good regulatory prowess, and for whom proximity is relevant and important, and that's true for lots of them, particularly small biotech companies that want to be there while the drug is being worked on, we tend to get a disproportionate amount of that work. We are trying to use, and I think we've said this probably for the last year, maybe a year and a half, we're trying to use the price surgically and strategically and thoughtfully to either protect share or gain share. The studies are increasingly more complex, costing us more. We fundamentally feel that we ought to be paid well for the work that we're doing. The work is critical. Since the clients can't do it internally, I think that holds us in good stead. It's a very interesting inflection point right now where we have clients, principally the very small biotech companies, worrying about access to capital. Until that changes, I think that sensitivity will continue. With all the policy dynamics, the potential pricing headwinds from the pharma companies, how do you think that impacts the value proposition of outsourced R&D? I think so much of their work has to be and will continue to be outsourced. The irony or the oddity about how this feels for us is that demand is slower than we would like it and what we've seen historically. By the same token, we're one of the solutions for them, for all of our clients, including Big Pharma, to be able to do their work faster at a lower price point. If they're really worried about the cost of drug development and access to capital, then outsourcing is an essential element for them. That's why we do what we do for a living. I think very few of our clients have any internal capabilities. If they want to progress their drugs, they don't have to work with us. They have to work with somebody like us. Most of the big companies will work with us. How should we think about the pricing environment from here onwards? It seems perhaps to be stabilizing. Perhaps it would be helpful as well if you could give us color. What would a project cost today versus maybe a year back, like for like? I don't think, and we brought our cost structure down. I mean, I can't give you a%. I mean, we're working all the time to take white space out of the process, to speed up the process, and not to do things that we've done historically, that aren't adding value. A lot of it isn't required from a regulatory point of view. I think we brought that down meaningfully. By the same token, our cost of running our business increases. We're paying our people more, and we have to get paid for that. We want to get the best people that we possibly can. All I can say is that we're working really hard to run as lean as possible, to pass that on to our clients, but to do that thoughtfully. Biotech, obviously, big debate there. Funding itself seems still relatively soft from the levels we saw in prior years. You mentioned, I think, on the recent call, you have different tiers of those biotech companies. Maybe break down those tiers and let us know what you're seeing across each one. Yeah, I mean, as I said, the very big ones are no different than Big Pharma. I mean, those are very large companies that are extremely well financed. Several that I'm thinking of, in particular in the Cambridge, Massachusetts area, are large, high-growth companies and amongst our largest clients. I mean, they're sort of in there. Our work with them is kind of at the same level as Big Pharma. Those are large, stable companies. They're almost indistinguishable. There's kind of mid-tier biotech, some are pretty revenue. They're very well financed. They've got great science. They've got a bunch of pharma deals usually, and they're much better financed. They're less price sensitive. I would say that probably everyone is price sensitive to some extent. We have hundreds, probably a few thousand, but definitely hundreds of small biotech companies that are very sensitive to their current financial situation. I think they thought the capital markets would open up in 2024 and then again this year. Obviously, haven't opened up. I'm not going to, I have no crystal ball about what's going to happen the next year. What's probably, very frustrating, not probably, what's very frustrating for them is the fact that they have really, very important science, important new modalities to treat disease. They are the discovery engine for Big Pharma, and yet they, if they've got six or eight compounds that they've developed, maybe they're only working on two of them because that's all they have the money to work on. I do think there's some pent-up demand. A bunch of those companies are getting bought. Some will go bankrupt. There'll be four or five hundred new ones this year, every year, actually. We always have a new cadre of new clients, which is terrific. Somebody asked us earlier, what percentage of the smaller ones? It's probably 20% of those small, definitely pre-revenue, pre-everything kind of startup biotech companies that have a great technology that comes out of some university or the government somewhere that they've established a company, that was much more active even two or three years ago. We'll see that again. The issue is when. Understood. I know investors like to focus on book to bill here. I think that's a bit below one times for the second quarter. How should we interpret this metric? I guess zooming out, we've obviously begun to see a steady increase here. Is there anything we should just keep in mind for the remainder of the year and beyond? Yeah, I mean, we've been pretty clear about that. Book to bill was above one times in the first quarter, dropped below it in the second. We were quite clear to say we don't think that's going to get above one times for the balance of the year. It's been improving for the last 18 months, though. We need to see the bookings, particularly with the small biotech companies, invigorate. I mean, that's the whole conversation here. Proposal volume is quite good with Big Pharma, but it's all about bookings and probably cancellation levels. We're not going to predict that because it's an impossible thing to predict. We have to see a few quarters in a row of sustained improvement to generate top-line growth, particularly in our safety assessment business, which most of the questions that you and others ask focused on, given that that's our largest business and one that's critically important and one that we have a dramatic leadership position in. Those cancellation rates, I think, were slightly higher in Q2 than prior quarters. Again, just some color on that dynamic would be appreciated and how we should think about that for the remainder of the year. Yeah. Cancellation rates are kind of an inherent part of being in this business. It's kind of two things. Studies slip because the drug isn't ready yet, the dosage isn't ready yet, toxicity is a problem, whatever. They reprioritize it, and so we have studies slip all the time. We have some studies that cancel. There's a penalty for that. We have backlogs that are kind of nine to ten months, so we love that. When stuff slips, we can almost always slot in something new. Same with cancellations. Cancellations were down in the first quarter and up in the second. I don't think that's predictive of anything. I don't think there's any sort of change in the slope of demand or has anything to do with the client base. It has to do with the nature of the types of studies in a particular quarter, probably longer term, more expensive studies that were moving towards the clinic that some of the clients have pulled back on, particularly those that are trying to reduce their cost structure. Obviously, we watch it. We try to stay close to our clients. We try not to be surprised by cancellation. Sometimes the people that cancel are surprised themselves because the work comes down from on high. I think it's manageable, and I think our backlog levels right now are in a very good place to be able to accommodate for that. Great. Another topic this year that was quite frequently discussed with us was the NAMs, the announcement earlier in the year from the FDA. What was your initial reaction to that? I know the stock obviously had its own reaction that didn't line up with where you guys ship out. Curious how you're thinking about that rate of change, if at all we will see a significant one. It was a very dramatic headline, probably unnecessarily dramatic, which I think got a lot of people's attention, which definitely is not a positive for the stock. Look, the notion is actually really quite straightforward. The units in terms of research models have been declining probably for 30 years. That's been offset by a mix enrichment in terms of much more sophisticated animal models. So genetically engineered models. We have diabetic animal models. We have hypertensive animal models that are hundreds of dollars apiece or thousands. We've had this mix shift, and we've had a lot of price every year. Animal models, particularly some of the genetic ones, particularly the smaller ones, are really a critically important research tool. I don't think that's changing anytime soon. I don't think that's changing anytime soon in terms of the utilization of research models in drug development, particularly toxicology. I do think that we're going to see that increasingly in discovery. I think that's probably a good thing. That could speed up drugs getting into the clinic or getting into preclinical tox. That could speed up clients getting to a lead compound faster. Probably, not probably, every pharma company has their own proprietary in vitro technologies. We have a couple hundred million dollars' worth of revenue at Charles River from that. We have several companies that work on those things. We have relationships with others. We will work on that. We've said we're going to invest another $300 million over the next few years. We probably will be the linchpin for our clients and the regulatory agencies to work on validation of these NAMs. The FDA has started with monoclonal antibodies, which is a much more straightforward, simple way to look at replacements and probably is apropos. We can't see it working maybe at all. I'm not going to say ever, ever for a long time, but with small molecules and for most of the large molecules. I think we'll see it in discovery probably over the next decade. I don't know whether we'll ever see it in large measure in toxicology because I think it's important to see the systemic multi-organ reaction inside of a human body to taking a drug, whether it's injected or swallowed. It's very tough to simulate that reaction, particularly when you don't know the mechanism of action of the disease. Obviously, from look at all the neurodegenerative diseases, we, the research community, have really no idea right now. With no, so you won't be able to simulate. Look, you know, our client's reaction to the FDA's pronouncement was, the science will prevail. We're going to do things the way we've always done them. We're really interested in looking at alternative technologies, even if they're just adjunctive, particularly if they help speed up the discovery process. They haven't really changed any of their habits. Again, it's been outside. No, no, no. They won't if there's any risk that that doesn't give them necessary data to get into the clinic. It's all about getting into the clinic and ultimately to get into the marketplace. Whatever the FDA in the final analysis is really only interested in drug safety. They won't do anything to impair drug safety. What they're saying is, if there are alternatives, even if they're adjunctive, let's use them and let's make some investments to try to develop them. I think that's going to fall in our lap. I think that we're going to play a very important role in that, and we're looking forward to that. Talk us through that $200 million today that you're generating. What areas excite you most within that group? I know you have competitors that are kind of pure playing one specific new approach. How do you think about broadening out your portfolio there? Yeah, we have it pretty much across the portfolio. We have it in discovery, we have it in safety, we have it in our microbial business, we have it even in the research model business. We have things like, off. We have a company that just looks for off-target effects. That's all in vitro. We have another technology that's called next-generation sequencing, which is replacing in vivo studies. We have a big AI deal with a company that's trying to develop drugs virtually, and we're using our wet lab capabilities with their in vitro technology to see whether we can help our clients get to a lead compound faster. It's very early days. We have a bunch of clients that have signed up. It's pretty expensive stuff for them. It takes a while, and we'll see. We have several external relationships where we are always looking for more. Some of this may end up being M&A. Some of it may end up just being licensing technologies. Some of it we will organically develop on our own. Again, I think the science will lead us to where we invest and what's practical for us. Understood. On small research models, I think volumes here continue to be pretty soft. How should we think about maintaining the balance between price and volume looking forward here? We've always had price in the research model business, whatever it is now. It's almost 80 years. That's not going to change. We get a significant price increase every year. We have a pretty good mix enrichment, as I was pointing to earlier, with animal models that are much more predictive of human diseases and other drugs might work in people. We have better growth in China than anywhere else in the world. While that's been a little bit slow, the Chinese government is definitely investing pretty aggressively in the life sciences. I think that's going to continue to be a good market for us. There are certain animal models where we're seeing some growth. We've had price and mix, I think, forever. We periodically get a pop from a unit point of view, but primarily in China. How has the demand for cradle services evolved in 2025, especially in light of the kind of funding constraints? Now, CRADLES has been and is going to continue to be a really important business for us. If you think about how early we start with clients in that business, which is at the basic R&D stage, on a see-through basis, that should pull through work into discovery and into safety and all the way through into our clinical work. It's really important. We've amalgamated and shut a few facilities, we had some duplication as a result of an acquisition. We're in all the major biohubs there. Pricing's pretty good, and we like the margins in that business. I would say that since a lot of that work is with kind of early-phased biotech companies that are looking for cash, that business is kind of in a stable place right now as opposed to a growth phase. Historically, it's grown nicely. I think once we see biotech funding invigorate again, we'll see that grow again. Academic, obviously, again, another one of the areas people have been focusing on this year. RMF, I'm pretty sure, has 20% U.S. academic and government exposure. You, I believe, called out that customer group growing mid-singles in Q2. How have you been able to manage some of the challenges in that end market? How sustainable do you think those more recent growth levels are for the remainder of the year? The government situation with us is sort of running counter to everything that you're hearing, and it's tough to figure out what to make of that. There are a lot of conversations coming out of Washington. I don't think a lot of that's settled down except that, you know, they were talking about big cuts in NIH, and now we're hearing that's going to be flat. I think things will be much less dramatic than we're hearing. There's a focus in every administration on drug pricing. I think that's an always, always. We have a relatively small amount of our business in academic and government, 20% in RMS, 6% across the whole company, 2% only with NIH, so it's relatively small. It was up for us in the first quarter. We have a situation right now. We're only aware of one contract, one piece of one contract that's been curtailed and nothing else. We have a fair amount of government contracts. I think we talked about the last time we massaged our guidance. We said we would anticipate there would be more of that. We just haven't seen it. It's possible that we won't see it. NIH has been really, just to talk about them, NIH has been really important in terms of innovation and the development of new drugs and new modalities. I think investment by our government and NIH, I think, is quite important. A lot of discovery initiatives come out of Harvard. I don't need to talk about that. We'll see where that all settles down. So far, we've had a de minimis impact from all of that. Understood. NHP, again, a lot of headlines always here. Just give us the latest on the space. I know revenue can be choppy given timing dynamics. Just help us think about that. are sort of two issues with NHPs. One is that we sell some to and use clients, mostly in China. It is very difficult to predict, but in quarters where we have those sales, the margins are stunning. We get a little bit of a pop in margin. It seems to shift from quarter to quarter. We would probably prefer not to sell those. We would prefer that the demand be so significant in the safety assessment business that we need to utilize all of those ourselves. That is the relationship we have from a supply point of view. I think until the demand invigorates further, we may continue to sell some. Demand for NHP tox work is quite significant. It is tied to all the large molecule work. I would say that our supply situation right now is quite good. We own some of the farms and have long-term relationships with others. We have at least four or five locations where we are sourcing NHPs, which I think is really important. We have added some capacity in the U.S. and Europe to house those animals and quarantine them before they go on study. That enhances the speed of the study. I think we are in a good place right now. Anything near it on that? How Q3, Q4, anything we should be keeping in mind? No, I don't think anything in particular. Good to hear. I want to give some time to manufacturing as well. Microbial has been doing well this year. What's driving the growth, I guess, across Endosafe, Accugenix, Celsis®? Just walk through. It's been a stunning business ever since we've owned it. We have extraordinary technology that's been patented, which is way ahead of the competition. The work that we do is required by law to find out whether drugs and medical devices got contaminated during the manufacturing process. We've got this sort of razor and razor blade structure. The disposables across all three of those technologies is the gift that keeps on giving. The margins are terrific in that business. We would anticipate that business will continue to be strong for us. On the CDMO side, earlier in the year, I think two customers, some commercial setbacks there from them that impacted you. How do you go about addressing that impact, and what timelines can you put on filling that capacity? Yeah. We had a couple of big commercial clients. One chose to go elsewhere, which happens. We do get a large payment from them, which we're past. The second one is still working with us, but to a lesser extent. That's less about us and more about the trajectory of their drug. The rest of our clients, and we have a couple that are kind of finishing up phase three, and they're talking to us about moving into a commercial domain. Their client base is clinical. Obviously, as those clients move from a clinical situation into a commercial one, the opportunity for a significant increase in revenue and margin is there. The demand for cell and gene therapy has been less robust than we originally anticipated when we did these acquisitions. The science is just very complicated. We probably are in the first generation of cell and gene. We probably have at least two or three generations right now. We've been working our way through that. I think we've made some very significant fundamental improvements in our facilities and in our operating staff and particularly in our regulatory folks. I think we've done very well with regulatory audits and with client audits. I think we're poised to do more work there. It's all about what the shift is from the clinical clients into a commercial domain and how quickly. It's a little bit difficult to predict when that will offset the work that we lost because we had those clients when we bought the business. There's only probably less than 30 cell and gene therapy drugs that have been approved throughout the whole world, and some of them have had some patient issues. We're focusing seriously on that business. I think we have a very sophisticated sales organization. I think the work that we've done, particularly the audits that we've had, I think word is getting out on those in a very positive way. Hopefully, this work will continue to convert to commercial work. I think there's been a lot of focus as well in the pharma space on insuring, I think, more of a $400 billion worth of commitments from pharma companies in the U.S. Do you think that could potentially benefit your CDMO business? Yeah, I mean, there's a lot of conversations about lots of initiatives and work that's supposed to come to the U.S. I think that probably will happen. I don't think they're building facilities tomorrow, but that will for sure generate incremental work for us. I don't think anybody is going to build new space doing the type of work that we do. I think they'll build space for very early R&D and very early discovery, and they'll build manufacturing facilities for their drugs, but all the development work that we do, I think, will continue to be outsourced. That would be very positive if those companies invest materially in the U.S. Yeah. A few minutes on financials if we have time. Market's still obviously choppy. How should we be thinking about margins for the business, for the remainder of the year and into 2026? What are the key points that you think are worth considering here? I'm not going to say anything about 2026. We did say that this year our margins would be, you know, I forget the exact, you know, off, I think it was 40 or 50 basis points. You know, given the cost reductions and given the fact that revenue is declining a bit, being in the ballpark close to last year's margins, our margins are quite good. We would be happy with that. Look, we're always working to drive our margins higher. I think our operating margins are among the highest in our peer group. We have several businesses that for sure will improve the margins. As we take our costs, both direct costs and G&A, I think we'll be able to sort of buttress whatever is going on with the top line. I wouldn't make any predictions in 2026 yet. The strategic review, maybe just give us the latest on there. Again, appreciate you probably can't go into too much, but we'd just appreciate an update here. Yeah, sure. We're deep in it. It's been a very thoughtful process. We're working with definitely a sense of urgency. A lot of questions from shareholders about where are you and when's that over and when will you tell us what the punchline is. We're looking at that portfolio very carefully and objectively. We've got some new board members who are pretty helpful with that. The process has been very collaborative and positive and respectful so far. I don't have an exact date when we'll have a punchline, but as soon as we have it, we'll clarify what we're doing. Great. We have a minute left. Last question from me. What's something you wish investors asked you more often or something that we should be paying more attention to that perhaps is going under the radar? I think looking at the long-term potential and growth metrics of our business in concert with where the client base is moving, the necessity for them to outsource, the competitive dynamic that we have. There's been, you know, we're in this strange inflection point right now, which I think has caused too much of a quarterly focus. I think looking longer term would be refreshing. Great. Thank you, Jim, so much. Appreciate it.