Covance deal expansion with "top-tier" customer bodes well for LabCorp says analyst

By Gareth Macdonald

- Last updated on GMT

LabCorp in Burlington
LabCorp in Burlington

Related tags Pharmaceutical industry

Covance has announced a contract expansion with one of its existing customers signing a multi-year deal to use the CROs trial optimization tech for lab monitoring.

Covance announced the expansion this week, explaining that the agreement with an unnamed “top-tier” pharmaceutical company reflects the capabilities of its Xcellerate software as a service (SaaS) monitoring and data consolidation technology.

News of the expansion was seen as a positive step and indication of the impact the contract research organisation (CRO) is having on its new owner LabCorp, particularly in terms of its offering to sponsors.

Evercore ISI analyst Michael Cherny said: “We believe the news to be incrementally positive because the announcement highlights the company's growth potential from new product opportunities that provide additional recurring revenue.

LabCorp paid $6.8bn (€5.9bn) for Covance earlier this year in a deal it said would scale-up its contract research business and biopharmaceutical sector client base.

Cherny predicted that Covance will continue to help LabCorp in this regard, suggesting that as the integration process continues LabCorp will “remain focused on driving additional revenue streams, both within each legacy business as well as through cross-pollination​.”

Pharma stickiness

The expanded deal also strengthens Covance’s relationship with a leading client accord Cherny.

 “This announcement also creates an additional level of stickiness with a key pharma sponsor that supports the value proposition that Covance's end-to-end offerings provide” although he declined to speculate on which customer was involved.​ 

Covance’s strategic clients include Bayer, Lilly, Otsuka, Sanofi and Takeda, at least that is according to data from Jina Ventures analyst Paul Richter that was presented at PCT Europe in 2013​.

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