Charles River Laboratories ( NYSE: CRL ) traded ~1% lower pre-market Thursday after Jefferies downgraded the non-clinical contract research organization to Hold from Buy, noting concerns on biotech funding and supply constraints.
Despite signs of stability, the biotech funding still suggests weakness in the short term before a potential recovery to previous highs by 2024/25, the analysts led by David Windley argued, citing a firm's survey of trial sponsors.
As reasons for the downgrade, the analysts note shifts in clinical development to late-stage studies from early-stage studies and see the uncertainty surrounding the supply of non-human primates to the U.S.
In November, Charles River ( CRL ) announced that a recent DoJ indictment related to NHP supplies from Cambodia would impact its animal supplies, a key element for pre-clinical studies.
Windley and the team estimate that ~24% of the company's U.S. NHP usage depends on those charged by the Department of Justice, "a perspective underappreciated by investors."
"Even if CRL can raise prices enough to cover the lower volume, with the even higher reliance on price and a fragile supply chain, it probably shouldn't trade at historical multiples," the analysts wrote, as they lowered the price target on Charles River ( CRL ) to $233 from $250 per share.
Issuing a Hold rating on CRL, Seeking Alpha contributor The Value Investor hesitated in November "whether to take profits or hold on to this excellent long-term investment" after rapid and solid recovery in its share price.
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Charles River cut to Hold at Jefferies on biotech funding and supply concerns