LabCorp buys Covance for $6.1 billion
pharmafile | November 5, 2014 | News story | Research and Development, Sales and Marketing |Â Â CRO, Covance, king, labcorp, medicalÂ
US medical diagnostics firm LabCorp has entered the drug development business via a $6.1 billion deal to buy contract research organisation (CRO) Covance.
The two companies said that by combining their operations they would be able to improve patient recruitment for clinical trials, make the conduct of clinical trials more efficient, and deliver data faster to drug sponsors, physicians, and patients.
LabCorp’s offer is $75.76 in cash and 0.2686 LabCorp shares for each share of Covance that they own, which is a 32% premium over the CRO’s share price at the end of last week.
One of the main draws for the merger from a drug development perspective will be the possibility for Covance to tap into LabCorp’s database of demographic and health information on some 75 million patients, says LabCorp’s chief executive David King.
Meanwhile, Covance’s presence in international markets will help LabCorp expand is diagnostics business outside the US, which currently accounts for around 90% of revenues, and also help lower its tax rate.
“By joining our highly compatible and complementary capabilities, the combined company will be an industry leader in both the laboratory and CRO spaces,” says King. The new entity will have “global scale, enhanced offerings, new efficiencies, broader and deeper customer relationships, and a differentiated business model.”
Investors in Covance responded positively to the news, driving its shares up more than 25% on the day, although LabCorp’s shareholders seemed less enthusiastic as its stock fell more than 7 per cent.
While LabCorp’s diagnostics businesses has been under pressure because of a tougher reimbursement environment in the US, some analysts questioned the validity of trying to merge the two sectors and pointed to a lack of cost-cutting opportunities from the deal.
The CRO sector has been punctuated by a series of large mergers and acquisitions as the larger players strive for the scale that allows them to negotiate strategic, high-level contracts with big pharma companies, and in Covance’s case it has signed multi-year alliances with the likes of Sanofi, Bayer and Eli Lilly.
The LabCorp deal is however very different, as it marks the first marriage between a major diagnostics player with a CRO and it remains to be seen whether the underlying rationale – which would make it easier for people diagnosed with a disease to be offered entry into a trial for example – will play out as the two companies hope.
King will remain chairman and chief executive of the new company, while Glenn Eisenberg, LabCorp’s chief financial officer, will also keep that role. Covance chairman and chief executive Joseph Herring will lead the Covance division and report to King.
The deal is expected to close in the first quarter of 2015, subject to a vote by Covance shareholders and regulatory approvals.
Phil Taylor
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