James Foster
Chairman, Chief Executive Officer and President at Charles River Laboratories International
Good morning. I'm very pleased to speak with you today about another exceptional year for Charles River and our expectations for 2022. We believe that Charles River is a stronger company today than it has ever been. We were extremely pleased to report, organic revenue growth of 15% for the full year or low-double-digit growth when normalizing for the COVID-19 impact in 2020 and a second consecutive year of 100 basis points of operating margin expansion.
We are seeing unprecedented demand across most of our businesses and we believe that this demand coupled with robust industry fundamentals will fuel low teens revenue growth in 2022. As a result, we're continuing to invest to add people and capacity to accommodate growing client demand and to build a scalable operating model to enhance our scientifically distinguish portfolio and to strengthen our relationships with clients through our flexible efficient outsourcing solutions.
To further differentiate ourselves from the competition, we have strategically expanded our portfolio to provide clients with the critical capabilities they require to discover, develop, and safely new drugs. We have enhanced our scientific capabilities for advanced therapies in areas that offer significant growth potential with six acquisitions over the past two years. By doing so, we have built an end-to-end non-clinical portfolio of cell and gene therapy solutions to support clients from early-stage research through CGMP production and we expected to generate nearly 15% of our total revenue in 2022. The greater complexity of scientific research is encouraging the biopharmaceutical industry to rely on Charles River high science capabilities when choosing an outsourcing partner.
Because of our extensive scientific expertise, client-centric approach, and unique non-clinical portfolio we worked on more than 85% of the FDA-approved drugs in 2021, including all of the CNS drugs and more than 90% of the oncology drugs. We are proud that our biopharmaceutical clients continue to choose to partner with us as they recognize the value that we provide.
Now let me give you the highlights of our fourth quarter and full-year. We reported revenue of $905.1 million for the fourth quarter of 2021, an increase of 14.4% on a reported basis. Organic revenue growth to 10.5% was driven primarily by continued double-digit growth in the manufacturing and RMS segments. The COVID impact in 2020 resulted in a modest 50 basis point increase to the organic revenue growth rate. For 2021 revenue was $3.54 billion with a reported growth rate of 21.1% and organic growth rate of 15.1%. On an annual basis, the COVID impact in 2020 resulted in a 280 basis point increase to the organic revenue growth rate. Adjusted for the COVID impact, we were very pleased that we achieved low double-digit normalized growth on a consolidated basis and that each segment and achieve its longer-term organic growth target in 2021.
The operating margin was 20.9% in the fourth quarter, an increase of 10 basis points year-over-year. For the full year, we met our outlook of 21% representing the second consecutive year of 100 basis points of operating margin improvement. This demonstrates the operating leverage inherent in our business, as well as our continued efforts to drive operating efficiency and build a more scalable infrastructure. We expect to generate modest operating margin improvement in 2022 which will moderate from the past two years, as we continue to make the investments needed to support growth principally related to staffing and because of a 20 basis point headwind from the 53rd week this year. Earnings per share were $2.49 in the 4th quarter, an increase of 4% from $2.39 in the fourth quarter of 2020. Strong revenue and operating income growth were partially offset by a higher tax rate and interest expense. For the full year, earnings per share were $10.32, a 26.9% increase over the prior year. We exceeded our prior guidance range of $10.20 to $10.30 and reported a second consecutive year with earnings growth, above the 20% level.
Our outlook for 2022 which we initially provided in January demonstrates our firm belief that the sustained demand environment will continue this year. We believe this trend, combined with higher pricing will drive organic revenue growth in the range of 12.5% to 14.5% in 2022. We continue to expect non-GAAP earnings per share will be in a range of $11.50 to $11.75. Earnings per share are expected to grow at a similar rate to revenue as modest operating margin improvement will be largely offset by less favorable below-the-line items including a higher tax rate. We are enthusiastic about the year ahead and look forward to new opportunities to scientifically differentiate ourselves in the marketplace, enhance our ability to meet clients' needs, and achieve our financial goals.
I'd like to provide you with additional details on our fourth quarter segment performance and our expectations for 2022 beginning with the DSA segment's results. DSA revenue in the fourth quarter was $534.1 million, a 6.7% increase on an organic basis. Biotechnology clients remain the primary driver of DSA growth in the fourth quarter as the industry remains well funded and ended the year on a strong note. As anticipated, the DSA segment's organic growth rates for the quarter was below 10%, but also as expected DSA achieved a low double-digit growth rate for the year at 12.2%. As we have said before, growth rates for our businesses are not linear, so quarterly fluctuations should be expected. In 2022, we expect DSA organic revenue growth will be in the mid-teens. The increase from last year's growth rate is based on our belief that sustained client demand will continue and higher price increases than in 2021 will help offset higher compensation costs and other inflationary cost pressures. The DSA growth rate is expected to accelerate during 2022 due in large part to the current pricing working through the backlog. The first-quarter growth rate is also expected to improve in the fourth quarter level.
Our Safety Assessment business continued to perform very well benefiting from strong demand and price increases. Bookings and proposal volume remained at record levels with the total DSA backlog increasing 70% or by $1 billion to $2.4 billion at year-end 2021. We are booking work into 2023, which translates to greater visibility and a strong book of business that supports our growth expectations. Acceleration of demand during 2021 was reflected in the fact that we added nearly twice as many safety Assessment staff in the second half of 2021 as we did in the first half. We expect these recent hires will help us accommodate client demand in 2022. In addition to closely managing the workload by continuing to add staff, we are taking a similar approach to capacity additions, investing in new space in a disciplined manner to ensure we meet future demand. Our Discovery Services business also continues to perform well with strong performances for early discovery and CNS services, similar to the Safety Assessment business, we are accommodating robust client demand for Discovery services by closely managing staffing levels and adding cutting-edge capabilities. We believe this will continue to enable us to achieve our annual growth rate in the low-double digits or better.
Our efforts to broaden and strengthen our discovery capabilities and enhance our scientific expertise are enabling us to expand the support we provide for our clients' discovery research. As a result, clients increasingly view Charles River as a premier scientific partner who can support their efforts to identify new drug targets and discover novel therapeutics. This is leading to new opportunities for our Discovery business including significant client interest in integrated drug discovery programs in which clients trust us with multiple services or their entire discovery program to advance their early-stage therapies. We intend to continue to build our Discovery portfolio including through strategic partnerships and acquisitions. Acquired in early 2021, Retrogenix with its proprietary cell microarray technology and off-target screening services had a very successful first year as part of the Charles River family. Combined with Distributed Bios, large molecule discovery platform clients can now partner with us for integrated end-to-end solutions for therapeutic antibody and cell and gene therapy discovery and development. Our partnership strategy has proven to be a successful approach to staying current with cutting-edge technologies and adding innovative capabilities with limited upfront risk.
We recently signed a new partnership with Valo Health to deliver a new type of offering that combines Valo's artificial intelligence or AI-enabled drug discovery and development platform with our own capabilities to expedite the discovery of small molecule therapies for clients. This partnership has the potential to accelerate the discovery process, as we utilize Valo's Open [Phonetic] closed loop in silico platform to rapidly identify compounds and optimize them using our leading in vitro and in vivo capabilities. We also recently announce an expanded partnership with [Indecipherable] innovative assay technology to further expedite the discovery process around a high-throughput screening of compounds. Our innovative discovery toolkit will enable us to become a technological disrupter in the industry and positions us as an indispensable research partner who can enable clients to identify and discover new drugs faster, which will ultimately reduce their time to market.
The DSA operating margin was essentially unchanged at 23% in the fourth quarter despite a 40 basis point headwind related to foreign currency translation. In 2021, the DSA operating margin improved by 30 basis points to 23.7%. Foreign exchange is an 80 basis point headwind. The DSA segment is expected to be the primary contributor to the company's operating margin improvement in 2022. RMS revenue in the fourth quarter was $165.6 million, an increase of 13% on an organic basis, which excludes the RMS Japan divestiture. The comparison to the COVID impact in 2020 increased the fourth-quarter growth rate by 2.3%. For the year, RMS organic revenue increased by 19.5% with approximately half the increase of 9.8% being driven by the comparison to the COVID impact in 2020. Normalized for the COVID impact, we reported high single-digit growth in 2021, which is consistent with the RMS organic growth outlook for 2022.
Our 2022 outlook reflects a continuation of the strong global demand for research models and associated services generated by the ongoing robust early-stage research activity within the biopharmaceutical industry, as well as that academic and government institutions. This outlook includes robust growth for our insourcing solutions business, as we continue to expand our Cradle footprint. It also assumes improvement in the cell supply growth rate throughout 2022 as our efforts to enhance the operating performance of HemaCare and Cellero gain traction during the year. The underlying industry fundamentals within a cell therapy sector remained strong. Research models remain foundational regulatory required tools for early-stage research and toxicology and a vital component of our abilities to support our clients. Revenue for research models has increased globally during the COVID-19 pandemic due to both higher pricing and improved demand reflecting the renewed focus on scientific innovation and the critical role that research models play in generating scientific breakthroughs and ensuring the safety of life-saving therapies.
Demand in China, was exceptionally strong in 2021 reflecting the resurgence of biomedical research activity following China's emergence from COVID-related shutdowns in 2020 as well as the shift towards a mid-tier bio-pharma and CRO client base and our expanded product offering[Phonetic]. While we expect the growth rate in China will moderate in 2022 including in the first quarter after an exceptionally strong start last year, we are continuing to expand our geographic footprint to support the continued double-digit revenue growth that is expected in this region. The heightened level of research activities also driving demand for our Research Model Services, which continue to perform very well in the fourth quarter and a full year. We are a natural partner for GEMS and insourcing Solutions or ISS. With our extensive animal husbandry expertise and our ability to provide clients with flexible and efficient solutions, GEMS is benefiting from strong outsourcing demand driven by the greater complexity of scientific research and the proprietary models that our clients are creating. ISS is benefiting from the continued growth of our Cradle initiative, which provides both small and large biopharmaceutical clients with turnkey research capacity at our sites and facilitates the use of other Charles River Services as a research progressive.
We intend to continue to expand our existing cradle footprint in the Boston-Cambridge and South San Francisco biohubs and also into new regions in 2022 including Southern California and China. Two significant client interests in this service. The RMS operating margin was 26% in the fourth quarter, an increase of 180 basis points from the fourth quarter of 2020. The increase was driven by operating leverage from higher sales volume in the Research Models business, particularly in China. To 2021, the RMS operating margin increased by 530 basis points to 27%. The significant improvement was primarily due to the comparison to the depressed margin in 2020 associated with COVID-related client disruptions. Manufacturing revenue was $205.3 million in the fourth quarter, a growth rate of 21.2% on an organic basis driven primarily by double-digit organic growth across the Microbial Solutions, Biologics Testing, and Avian Vaccine businesses for the full year, organic revenue growth was 20.6%. With that, with 210 basis points of the increase coming from the comparison to the COVID impact in 2020.
In 2022, we expect mid-teens organic growth for the Manufacturing segment. The moderation from the exceptional performance reflects a return to more normalized growth rates for the Microbial Solutions business after an incremental benefit from COVID-related instrument and cartridges replenishments in '21. And in the Biologics Testing business due to a reduction in some COVID vaccine testing revenue as that revenue stream settles into a steadier state. We're very pleased with the mid-teens growth rate forecast for 2022 and expect the Manufacturing segment will achieve its 2024 target of approaching 20% growth once the benefit of the high growth CDMO business is fully reflected in the organic growth rate and the CDMO scale continues to increase. Microbial Solution's growth rate in the fourth quarter and for the year remained well above 10% reflecting strong demand across our portfolio of critical quality control testing solutions. We were pleased with the strength of the demand for our endotoxin testing systems and cartridges, which performed FDA mandated lot release [Phonetic] testing and injectable drugs and medical devices. The advantages of our comprehensive portfolio continue to resonate with our clients and we believe that our ability to provide a total Microbial Solution will enable Microbial Solutions to continue to deliver revenue growth at or above the 10% level.
The Biologics Testing business reported another exceptional quarter and year of strong double-digit revenue growth. Robust demand for cell and gene therapy testing services continue to be the primary growth driver with COVID-19 vaccines and traditional Biologics also being meaningful contributors. While we expect a moderation of the COVID vaccine testing revenue in 2022, we believe cell and gene therapies will continue to be significant growth drivers over the longer term to support our 20% target for the Biologics business this year and beyond. Our CDMO business is continuing to make great progress on the integrations as we gain traction and business development activities to support its robust growth outlook in 2022. We've established an end-to-end gene-modified cell therapy solution, which we believe is critical to support our clients' more seamlessly. Our comprehensive cell and gene therapy portfolio is resonating with clients and they continue to explore opportunities to streamline their biologics development workflows and drive greater efficiencies by outsourcing to us. The strength of demand for CDMO services necessitates our continued investment in capacity to ensure we have available space to serve our clients and to build upon our extensive portfolio of being tax services.
The Manufacturing segment's operating margin declined by 160 basis points to 35.7% in the fourth quarter of 2021 and by 320 basis points to 34.2% for the full year. These declines primarily reflects the inclusion of the CDMO acquisitions in 2021 of Cognate and BeiGene [Phonetic] these businesses are profitable, but their margins umbrella overall Manufacturing segment. We expect this margin headwind to gradually dissipate as we drive efficiency and as a significant growth we anticipate it generates greater economies of scale and optimized throughput at our CDMO sites. In 2022, we will continue to move our growth strategy forward, disciplined M&A and strategic partnerships remain vital components of our strategy as we endeavor to further enhance the scientific expertise, global reach, and innovative technologies that we can offer clients across all three of our business segment. We will also focus our efforts internally and ensuring that we have the necessary staff and resources to meet the needs of our clients and support the robust growth in our markets and enhancing our real-time digital connectivity with clients and continuing to integrate our end-to-end non-clinical offering to create a more seamless solution across all drug modalities.
It's incumbent upon us to be the scientific partner who can help clients move their programs forward from concept to nonclinical development to the safe manufacture of their lifesaving therapy. By providing exceptional value to our clients, we believe we will continue to achieve our financial targets and deliver greater value to our shareholders.
In conclusion, I'd like to thank our clients and shareholders for their support and our employees for their exceptional work and commitment. Now I'd like David Smith, to give you additional details on our financial performance and 2022 guidance.
