LabCorp (NYSE: LH), already one of the largest laboratory testing and diagnostics companies in the nation, plans to further expand its reach into clinical trials by buying contract research organization Covance (NYSE: CVD) in a deal valued at approximately $6.1 billion.
The Burlington, NC, company will pay $105.12 per share in cash and stock to acquire Covance, according to the agreement announced Monday. That’s a 32 percent premium over Covance’s closing stock price Friday. LabCorp CEO David King will lead the combined company, which will be headquartered in North Carolina. Covance Chairman and CEO Joe Herring will remain with the combined company, leading the Princeton, NJ, headquarters of what will become the Covance division of LabCorp. The deal, which has already received approval from the boards of both companies, is expected to close in the first quarter of 2015.
LabCorp’s nationwide network of laboratories runs tests for hospitals, physician groups, and other health organizations. This network is second in size only to that of Madison, NJ, company Quest Diagnostics (NYSE: DGX). LabCorp has diversified beyond laboratory testing by developing or acquiring specialty tests that use genetic information to diagnose diseases such as cancer. LabCorp has also developed companion diagnostics, tests that are paired with so-called personalized drugs that only work on patients with a particular genetic makeup. Perhaps the company’s biggest move into genetic testing technologies was its 2010 acquisition of Genzyme Genetics for $925.2 million.
More recently, LabCorp reached a deal to acquire LipoScience (NASDAQ: LPDX) for $85 million. The Raleigh, NC, company commercialized a personalized cardiovascular disease diagnostic that it says is a more accurate predictor of that disease compared to cholesterol tests.
Covance conducts clinical trials worldwide and provides other outsourced services for pharmaceutical companies. Its $2.5 billion in 2013 revenue made it the second largest CRO behind Durham, NC, company Quintiles (NYSE: Q).
LabCorp’s deal to acquire Covance is not the company’s first foray into clinical trials services. LabCorp has for years conducted laboratory tests for pharmaceutical companies conducting clinical research for potential new drugs. The company expanded these central laboratory testing capabilities globally with a 2011 acquisition of Canada-based Clearstone Central Laboratories, which brought to LabCorp Clearstone’s operations in the Asia-Pacific region, along with sites in Europe and North America.
LabCorp now says that combining with Covance will improve patient recruitment for clinical trials and make the trials run more efficiently. Together, LabCorp and Covance say they will have business relationships with “all of the top 20 pharmaceutical companies and an attractive payer mix.”
“As a combined company, we will be well positioned to respond to and benefit from the fundamental forces of change in our business, including payment for outcomes, pharmaceutical outsourcing, global trial support, trends in pharmaceutical R&D spending, personalized medicine, and big data and informatics,” King said in a prepared statement.