ITEM 8.01 Other Events.
Contract development
and manufacturing services create a risk of liability.
The acquisition
of Cognate will expand Charles River’s business into the contract development and manufacturing organization
(“CDMO”) market, which entails additional risks of liability, including potential product liability claims, errors and
omissions claims in connection with Charles River’s services and potential liability under indemnification agreements between
Charles River and its officers and directors.
Set forth below
are additional risks and uncertainties resulting from the acquisition of Cognate described in Item 2.01 that could cause Charles River’s
actual results to differ materially from expected and historical results. The risks and uncertainties described below and in other documents
that Charles River files with the SEC, as well as additional risks and uncertainties either not presently known or that are currently
believed to not be material to the business, may cause Charles River’s actual results to differ materially from expected and historical
results. It is not possible to predict or identify all such factors. The risks discussed below also include forward-looking statements,
and Charles River’s actual results may differ substantially from those discussed in those forward-looking statements. See “Cautionary
statement regarding forward-looking statements” in this Current Report on Form 8-K.
Charles River
customers’ failure to receive or maintain regulatory approval for their product candidates could negatively impact Charles River’s
revenue and profitability.
Charles River will
have significant business which will materially depend upon the regulatory approval of the products it will manufacture for its CDMO
customers. As such, if these customers experience a delay in, or failure to receive, approval for any of their product candidates or
fail to maintain regulatory approval of their products that Charles River develops or manufactures, Charles River’s revenue and
profitability could be materially adversely affected. Additionally, if the Food and Drug Administration or a comparable foreign regulatory
authority does not approve of Charles River’s facilities for the manufacture of a customer product, observes significant deficiencies
or violations at its facilities or withdraws such approval in the future, Charles River’s customers may choose to identify alternative
manufacturing facilities and/or relationships, which could significantly impact Charles River’s CDMO capacity and capabilities
and results of operations therefrom.
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Charles
River’s CDMO business, financial condition and results of operations may be adversely affected if the products Charles River
manufactures for its customers do not gain market acceptance.
If the products
Charles River manufactures for its customers do not gain market acceptance or production volumes of key products that Charles River manufactures
for its customers decline, financial condition and results of operations may be adversely affected. For Charles River’s CDMO business,
Charles River will depend on, and have no control over, market acceptance for the products that Charles River will manufacture for its
customers. Consumer demand for these products could be adversely affected by, among other things, delays in securing regulatory approvals,
the emergence of competing or alternative products, including generic drugs, the emergence of new safety data for such products, the
loss of patent and other intellectual property rights protection, reductions in private and government payment product subsidies or changing
product marketing strategies.
Charles River
will have various competitors in the CDMO market which could result in a decrease in the fees paid for Charles River’s services
and may adversely affect its results of operations and financial condition.
Charles River’s
competition in the CDMO market will include full-service contract manufacturers and large pharmaceutical companies offering third-party
manufacturing services to fill their excess capacity. Also, large pharmaceutical companies have been seeking to divest portions of their
manufacturing capacity, and any such divested businesses may compete with Charles River in the future. Furthermore, many of Charles River’s
CDMO competitors may have substantially greater financial, marketing, technical or other resources than Charles River does. Moreover,
additional competition may emerge, particularly in lower-cost jurisdictions such as India and China, which could, among other things,
result in a decrease in the fees paid for Charles River’s services, which may adversely affect Charles River’s results of
operations and financial condition.
Manufacturing
services are highly complex and failure to provide quality and timely services to Charles River’s new customers, could adversely
impact its business.
The development
and manufacturing services Charles River will be offering will be highly complex, due in part to strict regulatory requirements. A failure
of its quality control systems in its facilities could cause problems in connection with facility operations for a variety of reasons,
including equipment malfunction, viral contamination, failure to follow specific manufacturing instructions, protocols and standard operating
procedures, problems with raw materials or environmental factors. Such issues could affect production of a single manufacturing run or
manufacturing campaigns, requiring the destruction of products, or could halt manufacturing operations altogether. In addition, any failure
to meet required quality standards may result in Charles River’s failure to timely deliver products to its customers which, in
turn, could damage Charles River’s reputation for quality and service. Any such incident could, among other things, lead to increased
costs, lost revenue, reimbursement to customers for lost drug substances, damage to and possibly termination of customer relationships,
time and expense spent investigating and remediating the cause and, depending on the cause, similar losses with respect to other manufacturing
runs. In addition, such issues could subject Charles River to litigation, the cost of which could be significant.
CDMO
operations are dependent upon the supply of necessary raw materials and supplies from third parties, and any inability to obtain such
raw materials or supplies could adversely impact Charles River’s business, results of operations and financial condition.
Charles River’s
CDMO operations will require various raw materials supplied primarily by third parties. Charles River or its customers will specify the
raw materials and other items required to manufacture their product and, in some cases, the customers will specify the suppliers from
whom Charles River must purchase these raw materials. In certain instances, the raw materials and other items may only be supplied by
a limited number of suppliers or in limited quantities. If third-party suppliers do not supply raw materials or other items on a timely
basis, it may cause a manufacturing run to be delayed or canceled which could materially adversely affect Charles River’s results
of operations and financial condition.
3
Furthermore, third-party
suppliers may fail to provide Charles River with raw materials and other items that meet the qualifications and specifications required
by Charles River or its customers. If third-party suppliers are not able to provide Charles River with raw materials that meet its or
its customers’ specifications on a timely basis, Charles River may be unable to manufacture its product or it could prevent Charles
River from delivering products to its customers within required time frames. Any such delay in delivering its products may create liability
for Charles River to its customers for breach of contract or cause Charles River to experience order cancellations and loss of customers.
In the event that Charles River manufactures products with components or raw materials that do not meet its qualifications and specifications
or those of its customers or governmental or regulatory authorities, Charles River may become subject to product liability claims caused
by defective raw materials or components from a third-party supplier or from a customer.
Caution Concerning Forward-Looking
Statements
This Current Report
on Form 8-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by the use of words such as “anticipate,” “believe,” “expect,” “will,”
“would,” “may,” “estimate,” “plan,” “outlook,” and “project,”
and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Forward-looking
statements are based on Charles River’s current expectations and beliefs, and involve a number of risks and uncertainties that
are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking
statements. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles
River’s Annual Report on Form 10-K as filed on February 17, 2021, as well as other filings we make with the Securities and Exchange
Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from
results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update
information contained in this news release except as required by law.