Labcorp Plans to Spin Off Clinical-Development Unit

"Laboratory Corp. of America Holdings plans to spin off its unit focused on clinical drug trials, a move that will create a new standalone company in the fast-growing contract-research sector.

Burlington, N.C.-based Labcorp unveiled the plan to separate its clinical-development business Thursday alongside its second-quarter results. Labcorp will continue its focus on its core diagnostic-testing business and will also retain two related pieces of its drug-development unit.

The Wall Street Journal reported on the planned spinoff earlier Thursday.

Labcorp reported second-quarter revenue of $3.7 billion, down 3.7% from a year ago, primarily due to a decrease in Covid-19 testing. Net earnings were $358.6 million.

Investor interest in contract research organizations that do outsourced drug trials and the like increased in the past several years as drugmakers poured money into developing new cancer and other treatments. Rapid development of coronavirus vaccines also provided a boost, for a time.

There was a flurry of deals in the sector last year as major players snapped up rivals, with Icon PLC buying PRA Health Sciences Inc. and Thermo Fisher Scientific Inc. acquiring PPD Inc.

In March of last year, Labcorp launched a strategic review after pressure from activist investor Jana Partners LLC, but ended it without a deal in December. At the time, it initiated a quarterly cash dividend and authorized $2.5 billion of share buybacks. It said it had examined a range of options including acquisitions, divestitures and spinoffs, and concluded its existing structure was best.

Spinning off the clinical-development business could facilitate deal making, by giving it a currency to transact with. Its focus will be providing Phase I to IV clinical-trial management and other services to pharmaceutical and biotechnology companies.

"In terms of the potential for business development, the opportunities out there are greater than they have ever been before," said Adam Schechter, Labcorp's chief executive officer.

He pointed to new capabilities needed in virtual and hybrid trials as one area of growth.

The businesses being spun off generated revenue of roughly $3 billion in the 12 months ended in June, a figure the company expects to grow at a high-single-digit growth rate.

It represents over 20% of Labcorp's roughly $13.5 billion of annual sales excluding Covid-19 testing.

Labcorp said it plans to retain the parts of the drug-development business that focus on early-stage development and central laboratory work. They require similar resources to its diagnostics operation.

Mr. Schechter will continue to lead Labcorp while leadership of the new company will be announced in the future, the company said.

Labcorp expanded into the clinical development space when it agreed to pay roughly $6.1 billion for Covance in 2014.” [1]

1. Labcorp Plans to Spin Off Clinical-Development Unit
Lombardo, Cara. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 29 July 2022: B.11.