LabCorp to operate under two segments following $5.7bn Covance merger

By Zachary Brennan contact

- Last updated on GMT

LabCorp expects the integration of the companies to go smoothly
LabCorp expects the integration of the companies to go smoothly
The integration of Covance and LabCorp is beginning with the announcement that LabCorp will operate under two distinct segments: LabCorp Diagnostics and Covance Drug Development, LabCorp CEO Dave King said in a conference call last week.

Jay Boyle, COO of LabCorp, is now CEO of LabCorp Diagnostics, while Joe Herring, former CEO of Covance, is now CEO of Covance Drug Development. Both will report to King, who also mentioned that the integration of the two companies is driving a new initiative that will seek to accrue savings in excess of a $150m over the next three years.

The company also expects to achieve net cost synergies in excess of $100m within three years, primarily through central lab consolidation, elimination of redundant public company costs and procurement savings with associated one-time costs to achieve these synergies of approximately $50m. 

Although the flawless integration of Covance is of utmost importance, I want to emphasize that it will not cause us to lose focus on the 2015 priorities for LabCorp Diagnostics​,” King said.

Growth

In terms of “immediate growth opportunities​,” King pointed to the combination of LabCorp and Covance “assets and data to deliver faster clinical trial enrollment…combining LabCorp’s database of more than 70 million unique patient records with Covance’s investigator database and analytic capabilities, positions us to deliver faster, higher quality clinical trials, significantly reduce clinical trial cycle time, eliminate nonviable sites which can significantly delay recruitment, reduce costs and ultimately enable our biopharma clients to reach peak revenue for their new products faster​.”

Herring gave the example of a recent biopharma client in which Covance was able to find over 1,000 patients in the LabCorp database that fit the inclusion, exclusion and genetic marker criteria, which helped Covance to be awarded a $45m study. “And we have about five other clients right now that we are working with on a similar basis​,” Herring said.

King also mentioned the desire by LabCorp to be “the partner of choice​” to develop and commercialize companion diagnostics as more than 20% of 2014 drug approvals were personalized medicines and there are dozens of drugs in Phase III development that will require companion diagnostics.

The combination of the companies will also help to “enhance the Phase IV trial experience and post-market surveillance. Approximately 30% of Phase IV patients drop out due to inconvenient trial procedures and a limited number of trials sites. LabCorp’s 750 patient service centers approximately 5,000 phlebotomist and physician offices and convenient patient web portal for scheduling can improve the Phase IV patient experience​,” King said.

We expect these three opportunities to generate over $300m in incremental revenue by 2018​,” King added.

Q4, Looking Ahead

Sales for the quarter for LabCorp were about $1.51bn, an increase of 5.3% over last year, while operating income for the quarter was $219m, compared to $215m in Q4 of 2013.

As for 2015, LabCorp expects total revenue growth  -- assuming foreign exchange rates effective as of January 31, 2015 -- of approximately 40% to 44%. Revenue growth in the clinical laboratory business will be between 3% and 5%, while revenue growth in the Covance business will be between 4% and 6%.

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