Labcorp Spins Out Global CRO Arm for Clinical Trial Management
Labcorp, or Laboratory Corporation of America, one of the largest clinical laboratory companies in the world, plans to spin out its drug development and clinical trial business.
The end result will be two independent, publicly traded companies: Labcorp, a global laboratory business and The Clinical Development Business, a global Contract Research Organization (CRO) offering Phase I-IV clinical trial management and technology to the biopharma industry.
In 2014, Labcorp acquired CRO Covance for about $5.6 billion. This made the combined company a provider of clinical diagnostic testing and a full-service drug development organization.
The spinoff comes about a year after Labcorp’s board of directors launched a strategic review, including initiating a dividend and speeding its share repurchase program. The company cites three benefits of the spinoff. One, it will bolster its “strategic flexibility and operational focus,” emphasizing better customer service and the ability to pursue specific market opportunities. Two, “focused capital structures and capital allocation strategies to drive innovation and growth.” And three, it provides a more targeted investment opportunity for various groups of investors.
“Spinning off the Clinical Development business will benefit customers and shareholders by creating two standalone businesses that are poised to accelerate growth and focus resources on distinct strategic priorities, customer needs and value creation,” Adam Schechter, chairman and chief executive officer of Labcorp said. “Our shareholders will be able to participate in the upside potential of two market-leading businesses in the global healthcare sector, each of which will be well-capitalized and positioned to generate sustainable growth with strong free cash flows and attractive returns. Our customers will continue to have access to our full range of capabilities with the same quality and seamless delivery of services they have come to expect from our teams. Today is a testament to our long history of growth through innovation and track record of delivering on our mission to improve health and improve lives.”
In the last four quarters ending June 30, Labcorp reported total revenue of $12.7 billion, $1.8 billion of which was COVID-19 Testing revenues. The combined business units reported a 5.5% growth on a CAGR basis from the second quarter of 2019 to the second quarter of 2022 without including COVID-19 Testing. The company expects the clinical diagnostics business to continue growing with mid-single-digit annual revenue growth.
Schecter will continue as chairman and chief executive officer after the completion of the spinoff, with headquarters staying in Burlington, North Carolina.
The separate Clinical Development Business, which brought in total revenue of $3.0 billion in the last four quarters ending June 30, grew 8.0% on a CAGR basis from the second quarter of 2019 to second quarter of 2022. They also project it will deliver high-single-digit revenue growth. They have yet to decide on a name for the spinoff but plan for it to be publicly traded on the New York Stock Exchange. No details about who will run the new entity have been released.
In June, Labcorp announced a new collaboration with HealthVerity, which focuses on Identity, Privacy, Governance, and Exchange (IPGE) for real-world data (RWD). HealthVerity’s IPGE platform allows Labcorp Drug Development and other involved companies to utilize HIPAA-compliant data from the largest health care and consumer data ecosystem in the U.S. Presumably, this work will go with the newly spun-off Clinical Development Business.
At the time, Dr. Paul Kirchgraber, M.D., chief executive officer of Labcorp Drug Development, stated, “This collaboration allows Labcorp to expand existing end-to-end solutions for drug and diagnostics development, commercialization and clinical trial efforts to include large-scale access to real-world data for research applications. By applying advanced analytics, Labcorp can help its clients improve their processes and reach better outcomes. Our substantial repository of test results can also help study sponsors more quickly and accurately assess patient eligibility for clinical trials, enroll patients faster and accelerate the availability of new medicines.”