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LabCorp (LH) Scoops Up Giant CRO for Approximately $1.2 Billion Cash



7/31/2017 6:37:20 AM

LabCorp Scoops Up Giant CRO for Approximately $1.2 Billion Cash July 31, 2017
By Mark Terry, BioSpace.com Breaking News Staff

Burlington, NC – LabCorp (LH), generally considered the largest clinical diagnostics company in the U.S. and possibly the world, announced it is buying private contract research organization (CRO) Chiltern for $1.2 billion.


Chiltern has a presence in 47 countries, employs more than 4,500 people, and provides comprehensive Clinical Development, Medical & Scientific Affairs, Data & Analysis, Pharmacovigilance and Strategic Regulatory services for clinical trial support. Once the deal is completed, Chiltern will be part of LabCorp’s Covance (CVD) segment.

LabCorp bought Covance in 2015 for about $6.1 billion, In April of this year, LabCorp/Covance indicated it planned to shutter its laboratory in Evansville, Ind. and lay off more than 100 staffers. LabCorp announced it was starting cost-cutting in its CRO business after the Covance Drug Development unit’s revenue and earnings slipped in the first quarter of this year. Covance’s revenue dropped 2 percent in the first quarter to $690.3 million. The drop in revenue was largely due to the cancellation of two big clinical trials in late 2016, for which Covance provided central laboratory services.

The CRO industry has been consolidating for several years, primarily being scooped up by private equity groups. This acquisition is expected to push LabCorp even further into new and mid-sized biopharmaceutical companies.

John Carroll, writing for Endpoints News, points to a recent survey of Endpoints 100 biotech executives. “Half of our E100 survey group said last fall that they outsourced ‘most’ of their development work. Another 20 percent said about half was done at a CRO. And 48 percent expected the amount of outsourcing work they did would rise this year. Buyouts make a lot of sense in a growth environment, as we saw in yesterday’s announcement that Evotec (EVTG.F) bought rival Aptuit for $300 million, adding to its discovery and development expertise.”

“Since LabCorp acquired Covance, we have grown the CRO business to nearly $3 billion in annual revenue,” said John Ratliff, chief executive officer of Covance, in a statement. “We now join with Chiltern to create a market-leading CRO, with more than 20,000 talented employees around the world. The addition enhances Covance’s offerings as a major partner serving the top 20 biopharma segment and expands our current offering to include a dedicated focus on the high-growth emerging and mid-market biopharma segments. We are very pleased to welcome the Chiltern team to the LabCorp family as we work together to realize the promise of this unique and powerful combination.”
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The transaction is all cash and is expected to close in the fourth quarter of this year.

This deal, in particular, is expected to create significant expertise in oncology by leveraging Covance’s experience in late-stage clinical trials with Chiltern’s early-stage study services.

In addition to some cuts in April, LabCorp announced that Covance Drug Development planned to expand its biopharmaceutical chemistry, manufacturing and control (BioPharmCMC) capabilities in Harrogate, England, into a laboratory facility at the National Agri-Food Innovation Campus (NAFIC) in York, England.

By the end of this year, LabCorp indicated it expected to create $100 million in cost synergies related to the Covance acquisition. It has expanded its LaunchPad initiative to include Covance Drug Development. LabCorp stated in April, “This initiative will consist of two phases implemented over three years. The first phase is intended to better align Covance Drug Development’s resources with its near-term outlook. This phase is expected to generate pre-tax savings of approximately $20 million in 2017 and approximately $45 million on an annualized basis thereafter, with pre-tax charges primarily related to severance and facility-closure costs expected to be approximately $30 million in 2017. The second phase will focus on long-term structural changes designed to create a more efficient business model for Covance Drug Development.”

It’s not clear at this time how the Chiltern acquisition will affect the LanchPad initiative.

David King, chairman and chief executive officer of LabCorp, said in a statement, “This acquisition (Chiltern) strengthens our position as a leading life sciences company that delivers innovative diagnostics and drug development solutions to improve health and improve lives. Our acquisition of Covance has demonstrated the value of combining diagnostic and CRO capabilities, expertise, data and leadership. The addition of Chiltern furthers our strategy and will provide us with enhanced capabilities across a broader client base as we continue to innovate and grow.”


Read at BioSpace.com


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