Ladies and gentlemen, thank you for standing by and welcome to Charles River Laboratories International Fourth Quarter Earnings Conference Call and 2021 Guidance Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised today's conference is being recorded.

Thank you, Mary. Good morning and welcome to Charles River Laboratories fourth quarter 2020 earnings and 2021 guidance conference call and webcast. This morning Jim Foster, Chairman, President and Chief Executive Officer; and David Smith, Executive Vice President and Chief Financial Officer will comment on our results for the fourth quarter and full year 2020 and our guidance for 2021 as well as our planned acquisition of Cognate BioServices. Following the presentation, they will respond to questions. There is a slide presentation associated with today's remarks which will be posted on the Investor Relations section of our website at ir.criver.com. A webcast replay of this call will be available beginning approximately two hours after today's call can also be accessed on our Investor Relations website. The replay will be available through next quarter's conference call. I'd like to remind you of our Safe Harbor. All remarks that we make about future expectations, plans, and prospects for the company constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated. During this call, we will primarily discuss non-GAAP financial measures which we believe help investors gain a meaningful understanding of our core operating results and guidance. The non-GAAP financial measures are not meant to be considered superior to or a substitute for results from operations prepared in accordance with GAAP. In accordance with Regulation G you can find the comparable GAAP measures and reconciliations on the Investor Relations section of our website. In addition today's remarks will also include estimates of the COVID impact on the company. Certain methodologies and assumptions related to how we develop these estimates can be found on slide three. I will now turn the call over to Jim Foster.

Thanks Todd. Good morning. I'm very pleased to speak with you today about the conclusion of another extraordinary year for Charles River our expectations for 2021 and the expansion of our early-stage research and manufacturing support portfolio into a complementary high-growth sector. 2020 was an unprecedented year. COVID-19 pandemic challenged us in many ways. But to date we've navigated it successfully and reinforced our position as the leading nonclinical CRO. Our success in 2020 was due to the resilience of our business model, a comprehensive business continuity plan that enabled us to keep our worldwide operating sites open and adequately staffed.

Thank you, Jim, and good morning. Before I begin, may I remind you that I'll be speaking primarily to non-GAAP results, which exclude amortization and other acquisition-related charges, costs related primarily to our global efficiency initiatives, our venture capital and other strategic investment performance and certain other items. Many of my comments will also refer to organic revenue growth, which excludes the impact of acquisitions and foreign currency translation. My discussion this morning will focus primarily on our financial guidance for 2021, which principally excludes the impact of Cognate BioServices. We expect 2021 reported revenue growth of 12% to 14% excluding Cognate and organic revenue growth of 9% to 11% which includes a benefit of the favorable year-over-year comparison to last year's COVID-19 revenue impact. Sustained client demand, including record fourth quarter bookings and proposal volume in our Safety Assessment business and a robust biotech funding environment support our growth outlook for 2021. Based on this strong revenue growth and with modest operating margin expansion in 2021, we believe we are well positioned this year to deliver non-GAAP earnings per share between $9 and $9.25. This equates to year-over-year earnings per share growth of approximately 11% to 14%, which is similar to our top line growth outlook, as higher revenue and margin improvement will be partially offset by a higher tax rate. Foreign exchange is expected to provide a 200 to 250 basis points benefit to our reported revenue growth guidance for 2021, as a result of the weakening U.S. dollar. Our FX rate estimates are based on the bank forecast for the year, which are currently very close to spot rates. We have provided information on our 2020 revenue by currency and the foreign exchange rates that we are assuming for 2021 on slide 40 and we'll continue to…

That concludes our comments. We will now take your questions.

Thank you. Our first question is from Eric Coldwell with Baird. Your line is open.

Hey thanks very much. Good morning. Just two quick ones here. First off and I think we could probably triangulate based on those last comments. But David could you tell us what the cost of capital you're using for the Cognate deal? It looks like you might be exploring some options on your debt structure related to this. And then secondarily, there were some comments on mix and safety being slightly dis-favorable in the short term. I'm curious if we could get a little more detail on what the driver of that was and what the outlook is for the mix going into 2021? Thanks very much.

Yes. So, Eric in terms of the cost of capital for our return on invested capital calculations, we use our WACC, which is around 7%. But I think your question is also about how we might fund it. So, we know the interest rates are very low at the moment. If that holds, then we will be looking to see how we might structure our long-term debt to finance Cognate. So, we'll say more of course in a few weeks or a months' time when we come to do that. But yes, I think it's definitely on the cards that with a low interest rate environment we ought to take advantage of that. And so although we can fund the investment initially through our revolver and we'll do that we will be keeping a close eye on actually what markets might do in terms of longer term interest rates for our bonds. In terms of the DSA margin, there were two aspects that drove that. But if I just step back a moment you -- as everybody knows, we've been trying to get to the 20% overall margin for Charles River for some time now, really pleased that we've achieved it this year, really pleased that we did it one year ahead of schedule. And DSA was a meaningful contributor to that. So, the margin grew 140 basis points over the full year. But we did have a slight decline in Q4. And that's partly to do with higher performance-based compensation. I mean we had the 9.4% organic revenue growth. I just mentioned the 140 basis point margin improvement so the wider DSA team absolutely deserve the compensation that they've got there. Secondly, to your question on the steady mix and we've had this conversation a few years ago where we have a situation where we've got a disproportion amount of studies that have large models and so did additional costs initially when those studies kick off. But if profitability improves over the course of the study and overall you end up with similar sorts of margins. So, mix is to tend to fluctuate. Sometimes it balances off to get the portfolio occasionally you get like we have in Q4 like we had a few years ago where we've got a particular heavy load and the like on studies that have larger costs at the beginning. So, overall, yes, we're very pleased with the potential for DSA. Still striving to move that towards the 25%, which I think Jim mentioned in his prepared remarks as well. So, this Q4 impact is mostly transitory.

Your next question comes from Dave Windley with Jefferies. Your line is open.

Hi, thanks. Good morning. Thanks for taking my question. I wanted to focus on cell and gene therapy with my question in your Cognate acquisition I guess a two-parter. Jim in the WIL acquisition, there was a small CDMO that came along with it and you decided to sell that kind of decided that you didn't want to be at least in that CDMO business. So, Part A of the question here is elaborate a little bit on why the CDMO opportunity in cell and gene therapy is more attractive to you for Charles River to get into. And then Part B, the question is to flesh out a little bit more of the pieces that you've now assembled, with your cell supply, your complementary biologics testing capabilities et cetera, a little bit more of the continuum? And are there -- is that fairly complete at this point, or are there other additional capabilities that you feel like, you need to fill into white space in your C&GT business? Thanks.

Yes. Thanks for that Dave. Yeah. So, many years ago we did acquire a small molecule CDMO. And it was a perfectly good business. And you'll recall, kind of we told that we -- we told you and other analysts and shareholders, that we had done an exhaustive analysis of the industry. And we had decided that, it was -- there were some very, very big players. And it would be difficult for us to achieve scale. And since we like to be, if possible the premier player in the spaces in which we work. We just -- we thought it was best to exit, which we did. And at that time, perhaps overstated, I desired to remain out of it. But as you know, over the last couple of years in conversations with us, I think several things have happened. Number one, cell and gene therapy has heated up dramatically. Number two that brings with us both, an opportunity to make a niche play, in the CDMO space. And be minimally a leader which we're entering with this asset, as a leader in the space and potentially the leader overtime. So we -- so that sort of dovetails with the original comments that we made. You've got this $20 billion of investment in cell and gene therapy. Just in 2020, you've got 2,000 drugs that have been filed. The vast majority over two-thirds or three quarters I think are in preclinical and Phase I. So the demand has heated up dramatically. We have a lot of inbound. Our M&A is derived from requests from clients, for products and services that they need that they'd like us to have, either because they trust us more or they're unable or incapable of getting these, elsewhere. So, this feels like, -- it…

Very good, sounds good. Thank you.

Sure.

Your next question is from John Kreger with William Blair. Your line is open.

Thank you. Jim, just a quick follow-on on what you just said, I assume, the work that Cognate is doing is clinical at this point, but are you set up for commercial scale production? And can you maybe comment on, the -- kind of the capital footprint and investment needs that you think you're going to need to make in the business over the next few years? Thanks.

Yeah. They've got a good geographic footprint. It's US and Europe. They have -- definitely have incremental capacity, some of which has been, added relatively recently, which will provide the capacity both, to do larger clinical trial lots. And if and as those drugs move into commercial, into a commercial domain, obviously to do that work as well, which the clients will want to do that also. Obviously, there's, very few commercial products that exist in cell and gene therapy period, although so many being worked on right now. So that certainly would be the goal and the strategy we anticipate. We certainly have the technical ability, regulatory ability knowledge of CGMP production in cellular therapy from people that have come from a host of different company backgrounds to form a very strong management team there. Capacity like all of our businesses that are growing will be important as we built out somewhat in advance of having the demand and anticipating the demand. I do think the clients of Cognate's will be very pleased to see it in our hands, because there's the uncertainty of being private equity owned and what's the future and what's the investment portfolio. So I do think that clients who are working with this company now in the clinic whose drugs are progressing nicely will have a high degree of confidence, if the drug makes it that we could and perhaps should be their commercial producers. So we like that sort of entry point here with a bunch of increased business with our access to clients with their footprint and with this being part of our overall portfolio.

Great. Thank you.

Sure.

Your next question is from Ricky Goldwasser with Morgan Stanley. Your line is open.

Yeah. Hi, good morning, and congrats Jim on completing the acquisition. I know you talked about it I think over a year at our conference and your intent to enter the area. So congratulations. My question is around the margin profile. Clearly, you exceeded your margin expectations by a year. But from everything I'm hearing, it sounds like there's a real nice opportunity for long-term margin expansion, right? You talked about the complexity of the projects that you are working on. And even when I think about sort of the strategic outsourcing it seems that we're starting to hear from some companies that they're looking to downsize their own facilities and their own sort of workspace, which I equate to kind of like 5, 10 years ago what we saw in the talks were kind of like capacity was coming down which gave you an opportunity. So how should we think about that margin expansion and opportunity? And when you give us those long-term goals is it going to be kind of like a 2-year goal, or are we thinking longer-term here, especially given kind of like the Cognate acquisition that really opens this new and growing market opportunity?

I'll give you a general comment. David may want to give you a slightly more specific comment. And I think we'll leave sort of the overall deep dive on this important subject with you entirely until we give longer-term guidance. But I think as a bottom line proposition, we are organized to drive efficiency throughout all of our businesses. We are organized to keep our G&A load as flat as possible as the business continues to grow and could -- we've demonstrated that over the last few years. We've also demonstrated our ability to drive efficiency. We're going to be doing some more work on the digital front, which will provide greater connectivity amongst our sites internally and externally, and we'll certainly take time out of the process that should generate better returns also. We certainly will continue to have pricing power across all of our businesses, which I think you are alluding to with the outsourcing demand. There's basically biotech. We have a big pharma footprint. Biotech is the principal driver of our growth. Biotech is extraordinarily well funded and biotech has no internal capacity and doesn't want to have it. So I would say first and foremost, our biggest business segment which is DSA definitely has meaningful margin opportunity going forward. We still have some major acquisitions in that business that have improved nicely, but still have more margin to contribute. And I think efficiency across all of those businesses will be significant. The company that we just bought will continue to have improved margin opportunity. You've got to see RMS get back to kind of historical levels to 2021. And then I think it should improve particularly since it has that attractive cell product aspect to it. I think the Manufacturing segment can always get better. We'll see how we decide to say about that. The margins being at 37% are obviously quite extraordinary. Having said that, I think there's probably still opportunity in the Biologics business to drive growth. So you should see some modest improvement in 2021 as we said in our prepared remarks and certainly more on a forward going basis, and we'll give you a deep definitive dive on that in the not-too-distant future.

I think you've covered all the main bases there, Jim. And the only thing, I would add is that, we constantly give some deep thoughts about where to invest versus the margin expansion. And it's always a balancing act to look for the medium term. But despite that comment as Jim said, we do feel we can get margin expansion this year. And we'll say more when we have the virtual Investor Day in the spring.

Thank you.

Your next question is from Juan Avendano with Bank of America. Your line is open.

Hi. Thank you. I have a few questions on RMS. I guess, the first one is the pent-up demand in research models, do you foresee that to be a multiple quarter event? And related to that, it seems like the supply of non-human primates has been severely impacted by COVID-19 and export bans from China. Are you seeing a benefit in your Research Model volumes as clients might need to migrate towards smaller volumes in the absence of the bigger models? This is a dynamic that, I've been sort of tracking. And then the last thing is on HemaCare and Cellero it seems like the revenue that came in, in the quarter was a little bit lighter than expected. And so just curious, if you're seeing a lingering impact from the pandemic on the donation centers? I'll leave it there. Thank you.

Yes. There's probably a slight lingering impact as you put it on the government side through the fourth quarter. We had shutters down and then we opened it in May. It's been improving steadily. There's still some – obviously, some social distancing going on and we're always looking for new donors. So probably some slight drag coming out of the year. As we said in our prepared remarks, we anticipate that we'll continue to improve both as COVID becomes less severe hopefully. But even, if it doesn't, we feel we have the operational knowledge to structure this in a way that we should achieve the goal. So we had next year's targets, which is north of 30%. So that will continue to participate – to grow nicely. In fact, you're going to ask another question on nonhuman primate. So I'll answer the one, I thought you were going to ask and answer the one that you did ask, why is that the supply is definitely constrained around the world? I think we've done an exceptional job in adding ensuring tightening up expanding our supply sources so that we have multiple supply sources for multiple countries, such that we can support the demand, which is quite significant. The sort of changing out of species and moving to smaller species, maybe we should have an offline conversation on that. I just don't think that's – I don't think that's happening. Work on large molecules really has to be done on larger species to get the sort of quality results that we're looking for. So I think NHPs will continue to play a critical role. In terms of pent-up demand for RMS, I think we've seen much of that play through the academic medical centers that were totally or partially shut in – basically in all three geographic locals. Asia, Europe and the US have essentially all opened. We don't believe regardless of the level of infection with COVID that they're going to go down – go back in the lockdown. The research is too important. They're sorry that they shut them down and they definitely now had to work with other agents around and given that their laboratories are usually all gone down. So we think that, we're back in kind of a normal cadence in RMS for the products which is principally what you're talking about the services obviously we're not only unaffected but I think benefited from some of the COVID disruption that our competitors saw. But in terms of production sale of research models, I think we're back to normal cadence both in volume and price enhanced by the cellular products of business that continues to grow.

Thank you.

Your next question is from Robert Jones with Goldman Sachs. Your line is open.

Great. Good morning. Thanks for the question. Jim, I wanted to go back to the comments around the delayed instrument installations in Microbial. It seems like you're expecting that I think the language you used was to affect revenue growth well into 2021, but it seems like you saw some improvement towards the end of 2020. So just wanted to understand a little bit better what needs to kind of change at the client front in your mind to see a reacceleration of these installations? And then relatedly, I think, you gave some commentary on margins by segment, but overall it looks like 20 basis points to 30 basis points improved EBIT margins. How could that look if in fact these installations start to come back in faster in 2021 just to the overall enterprise margin?

Yes. So it's an imperfect world to predict this, but we feel pretty confident in what we've told you which is that for sure we have had difficulty accessing clients to install our largest and most complex systems. And in a few cases we have been able to do this with some of our larger systems on a virtual basis. So the clients really were -- really needed these systems and were willing to dedicate the people and the time to do with us. And of course, we had to be creative and facile to do things virtually. Now having said that, we've had the FDA and other regulatory agencies auditing us virtually all year all of 2020 and clients have done that. And we've done virtual audits of lots of things ourselves including some aspects of the company that we're in the process of buying. So we're in a virtual world. So it's hard to predict how comfortable people will get doing things virtually or whether they're just going to want to wait. We think it will be a similar cadence to what we're on. The virus is pretty rough right now obviously. So limitations in many of the countries in which we work and we place these systems in many of the states in the US are severe. We're not letting outsiders into our facilities, for instance. So the impact of that is as follows that we don't place the systems, which are large systems. They got large ASPs and they're quite profitable. But even more importantly than that every one of these big systems generate substantial amount of revenue of cartridges, reagents and to some extent and in some instances our Accugenix ID business. So we're losing all of that associated incremental revenue on all of these…

Got it. Thanks.

Sure.

Your next question is from Tycho Peterson with JPMorgan. Your line is open.

Hey. Thanks. A couple of follow-ups here. Jim starting with Cognate. I want to go back to John Kreger's question on CapEx. If we look at some of the other CDMOs whether it's Catalent with Paragon and MaSTherCell or Thermo with Brammer. The cost of building out facilities here are not insignificant in the kind of $150 million to $250 million range for commercial cell and gene therapy facilities. So in the context of your CapEx guidance being $180 million, I'm just curious how we should be thinking about your willingness to take on maybe more -- much more significant investments? And then two quick follow-ups for David on guidance. I'm curious if you can break out any COVID contribution. I know it was $60 million in 2020. So what's baked in for 2021? And then on the margins, it does seem like there's a couple of potential drivers to the upside here. You did have the DSA price increase you flagged. RMS recovering from COVID suppressed levels and then the Manufacturing installation tailwinds -- sorry headwinds wearing off. So all of those seem like they could get you above modest improvement, but I'm just curious if there are more meaningful offsets that would continue that? Thanks.

So the CapEx will not be insignificant in this business. It will be meaningful, but I don't think we'll be disproportionate to the growth potential of this business. This will be amongst if not the highest growth aspect of our business. So we'll have to invest ahead of it as we've said earlier. Obviously, there's a substantial installed base already that we're buying. This business is principally GMP cell therapy manufacturing. And secondarily, the production of plasmid DNAs. And while the CapEx is substantial it's less substantial in some aspects of contract manufacturing. So we're not really going head-to-head for instance with Thermo and Catalent that are more gene therapy manufacturing businesses. So it's difficult to get sort of what there spend is versus what ours will be? They won't be -- it won't be insignificant, but it will be a lower order of magnitude one that we're pretty confident we'll get substantial returns on and that we've already obviously baked through our model and we'll give you clarity on it as soon as we close this deal. David, you can take the second question.

Yes. Yes sure. So short -- in terms of COVID and the sort of headwind tailwind here, the short answer is we've contemplated a sensible approach, at least we believe a sensible approach to what COVID will do in our guidance. So that's baked in. Of course, we don't know what we don't know. Just to unpack that a little bit. So we obviously, we had some significant losses because of COVID particularly in RMS. And we did say at the last earnings call that we expected RMS to be broadly exiting the year with COVID behind us and we still believe that to be true. In academics, clients seem to be open and we're not expecting that do a U-turn, but we'll keep an eye out for that. We generated $60 million of revenue that was COVID related both in DSA some vaccines and some other aspects. Not all of that will go away. We expect to see some of that continue into 2021. And that's also baked into the guidance. So there are puts there are takes. Broadly, we feel the way we're looking at it, we've broadly got COVID behind us other than the things that's already been called out late. We've just been talking about Microbial for instance that's a lit bit of a headwind. Moving ahead with your margin question. Just want to call out a few potential opportunities. I just want to make sure that you're cognizant of the unallocated corporate costs. So historically, we've seen a 50 basis point improvement as a percentage of revenue. This year we're guiding towards pretty much flat 2020. And the reason for that is that we have got some investments that we are contemplating or in the process of putting in. In fact when Jim talked at the JPMorgan conference, we talked about five different strategic imperatives and one of those strategic imperatives was to champion technology. And indeed, I think Jim's just mentioned a few moments ago, the desire to put in best-in-class technology should help our clients essentially access scientific data in real time. So there is some set-up costs associated with that, which means that the unallocated COVID cost is not giving that 50% basis points that we've historically had, but we would expect to have that behind us this year.

Okay. Thank you.

Your next question is from Patrick Donnelly with Citi. Your line is open.

Hey, thanks for taking the questions. Jim maybe a follow-up for you on the RMS business. It certainly proved more resilient even while the pandemic has lingered here. Can you just talk through what changes you've seen in customer behavior there? And then I know in recent quarters this one included you talked about some academic share gains. How much of that is increased penetration versus taking share from competition?

Yes. We definitely have seen a change in demand, outsourcing demand on the service side of our RMS business, almost entirely from the academic sector, who really were up against it with COVID with facilities that literally were shutting prematurely and a significant amount of research was at risk. And the fact that we were open that we were capable of doing this and have been able to do it so well for them for this amount of period of time, I think it demonstrated sort of the frailties of them continuing to do this internally. So there's no question that we've seen incremental work that was done internally be outsourced. And we're highly confident that a meaningful amount of that has stuck. And just a quick side. Similarly you asked the question about RMS, we saw some of this in Discovery and Safety in the second quarter with clients who either they were using another provider who was incapable of supporting them during the sort of -- kind of initial outbreaks of COVID and/or their own facilities were shut for some meaningful period of time and that caused them to either contemplate outsourcing for the first time and contemplate more outsourcing that they had done historically. And definitely based upon the feedback we've gotten from these clients really pleased with the services that we provide and the speed with which we're doing it and the price points as well. So there's no question that we've got. It's an incremental share that was perhaps not available to anybody that was being done by the clients themselves. And for sure some work that was outsourced to competition both in RMS and in DSA where they were unable to do that. And that incremental share gain and expectation of continuing to gain share in certain aspects of our business is certainly baked into our 2021 numbers.

Great. Thanks, Jim.

Your next question is from Sandy Draper with Truist Securities. Your line is open.

Thanks so much. Most of my questions have been asked and answered, but maybe just one quick follow-up on the microbial testing. And maybe looking at the other way less about what getting pulled forward in margin impact, but are there any capacity constraints Jim or David when things clear up? I'm just trying to think could this be a bolus of revenue that than for four quarters is higher and then normalizes, or do you think it would just sort of return to a normal level? I'm just trying to think through what would have to happen. Is this just -- you start to ship it out and put people out, or is there a point where you can only go so fast and so it's just going to get back to a normal level? Thanks.

Yes. I don't think there'll be a bolus of activity. The machines will have to be installed virtually or for real probably most real. And then the clients will have to start to utilize them. Obviously that installed base of whatever X number of machines that have either been delivered and not hooked up or waiting to be delivered by us to the clients who's not letting us in. As I said earlier sort of every day, every week, every month they don't have those systems. They're not buying the associated disposables. It's unlikely we're going to install all those systems at once and then they're going to suddenly expect to use them at once. Obviously, it's beneficial once we install them, because they are larger and they use a disproportionately large amount of disposables that will be beneficial, but I think it will be gradual. It will be persistent. We're continuing to build -- our inventory will be in enough shape. I think you're inferring is that going to be a problem or an opportunity? I think our inventory will be appropriate shape to accommodate demands in those associated disposables. But I think it would be steady, maybe it's slightly beneficial in a particular quarter or two, but I don't think there's going to be a surge in demand.

Great. Thanks so much, Jim.

Sure.

Your next question is from Dan Brennan with UBS. Your line is open.

Great, thanks. Thanks for taking the questions. Congrats on the quarter. I've had two questions and a margin follow-up and then one more on Cognate. On the margins, I was hoping you could just help us on some of the segment margins. I know for Manufacturing, obviously exited the year at a great level, but I'm just wondering what is the guidance on Manufacturing margins for 2021? It's a little unclear from the deck and from the comments. And similarly on RMS, I know you talked about well above 25%. Are we talking 27%, 29%? Any help on those two numbers? And then, I have a follow-up.

Great. So in the Manufacturing, if you exclude Cognate, we would expect the margins to be similar to the way we exited in 2020. However, Cognate will be a little bit of a drag. So we are expecting with Cognate for just this year to be somewhere in the ZIP code of the long-term guidance that we've particularly given out, which will be in the mid-30s. We'll say more about where we think that's going to go at the Investor Day. In terms of RMS, okay, so well above 25%, that's a fair call out. Where's the ceiling on that? I think last -- if you look at last year, we were a little bit above the 25% to 26%. So I would say somewhere in the mid-high teens would be about -- sorry, mid-high 20s would be about right.

Okay. Thanks, David. And then, just maybe one more on Cognate. I'm just wondering, could you give us any color on -- obviously, it's still a nascent market, any color on the competitive positioning Paragon and MaSTherCell. I'm sure WuXi Advanced and the big players are all focused here as well. So just any color whether it’d be number of clients, or just any color you can give on that front? And then, I'm just wondering, in terms of the senior executives of Cognate are they locked up given how critical talent and expertise is to run these complex CMOs. I'm just wondering what the deal terms were on that front? Thank you.

So you should think of our principal competitors in this space being Lonza and WuXi and not Thermo and Catalent. And number one, you should consider that the size of our business, the business that we're buying is comparable to those two. So, in the same ZIP code. Specifically, with regard to the sort of manufacturing capabilities that we're acquiring, if you look at the totality of our portfolio in cell and gene therapy, from the cellular product businesses, we bought last year with this business that we're teeing up now across our whole portfolio that cell and gene therapy capabilities are vastly more significant than those two players, and across the continuum where they can continue to use our services. So, we feel really good about our competitive position. I said earlier in answer to someone's question, we're entering as a leader specifically the CGMP part, and I think our aspirations and I think high probability that we could be the leader with this in the midst of Charles River's larger portfolio our reputation our client contact. And with regard to the management, we've always been successful in keeping key management. And obviously, we'll be proceeding to get contracts in place as -- now that we just signed a deal. So, we're quite confident that we'll keep the key management team in place.

Great, thanks, Jim.

Sure.

Your next question is from Donald Hooker with KeyBanc. Your line is open.

Hey, great. I guess a lot of questions have been asked here, but maybe the big picture. Jim would love your broader perspective kind of with your leadership position in the space kind of on the topic of using artificial intelligence and machine learning and drug discovery. I know you had one partnership there with a company called Atomwise. You have a bunch of other partnerships. I'm not sure, if you're dabbling in that area in other ways. What are your evolving views there? I know you've mentioned in the past, but just curious if your viewpoint on that topic has evolved?

Yeah. We think that artificial intelligence and machine learning will increasingly have a role in drug development, both in predictability of successful preclinical trials and predictability of success in clinical trials. And then obviously, have a role in the design of those trials and some linkage between the animal work and the human work. Theoretically and practically utilizing, if you take a look at the data that we have on thousands and thousands and thousands of molecules, some of which have succeeded and many of which have failed is -- can be highly important and predictive. How robust that technology is, how quickly regulators adopt it, how quickly our clients embrace it, is really hard to tell. What technology do we utilize as we make these small investments in these technology deals we're going to definitely get access to multiple different ways of utilizing that data? And we may use them in combination or we may just have one that prevails. We've done a lot of work on this internally and with a bunch of world-class experts. And while we think there's an ongoing role, we want to be very careful in terms of how we invest the shareholders' money and the assumptions that we make on sort of adoption by the users and not either invest in a wrong technology or invest too aggressively prematurely. So, on a very measured, but very thoughtful basis, we're going to continue to play in it. And I would say that, it's more than use the word dabble. I don't really feel that we're dabbling in. I think that we're -- we're seriously investigating the best way to utilize our capabilities in concert with some powerful AI tools. I suspect we will have additional AI technology partnerships going forward.

Thank you.

Your next question is from Dan Leonard with Wells Fargo. Your line is open.

Thank you. So quickly, anything to be mindful of from a phasing perspective in your 2021 guide, given your comments on the first half outlook for DSA? Is first half, a larger than typical proportion of your full year outlook, given the visibility you're messaging on the DSA side? Thank you.

We don't normally see big gating differences in DSA throughout the year. We see that case in Biologics sometimes in RMS, but nothing particular to call out on DSA. We try to give you quite a lot of the pieces and give you a little bit of a hint for Q1 as well. But other than that, no, we don't look at DSA and feel that there are types of incidents that happen that would make that funky other than things like we can often have a mix issue. And that's not to do with the calendar. That could be at any point in the year.

Okay. Thanks.

And your last question is from Jack Meehan with Nephron Research. Your line is open.

Thank you. Good morning. Just to conclude, I was hoping you could give a little more color on DSA margins. I was wondering, obviously, the full year was strong, but fourth quarter underperformed a little bit. Are you seeing any inflationary pressures just given the amount of demand out there, either on wages or on some of the supply constraints around the large models? And what's embedded for 2021 in terms of those points?

So, we've never really called out that we've had like wage pressure. That is atypical from what takes place in those countries. So there's nothing specific to call out for Charles River vis-à-vis wage inflation et cetera. And believe we take a very close look to what's going on country-by-country and try to stay competitive there. And there was an exception in 2018 midyear, when we felt that we wanted to bring Charles River to a living wage type organization, which we called out. But there are no real surprises in terms of wage inflation or in terms of supply costs, that we feel that we should be calling out other than what we've already said in terms of Q4 was really to do with the timing issue. Other than that, we feel that we will get -- start working -- will continue to work towards the mid 25% that we've been striving for some time. And we don't have much more to say.

Thank you.

Great. Thank you for joining us on the conference call this morning. We look forward to speaking with you during upcoming investor conferences. This concludes the conference call.

Ladies and gentlemen, that concludes today's conference call. Thank you everyone for joining. You may now disconnect.