LabCorp offloads food testing business not in line with CRO ambitions: analyst

By Melissa Fassbender

- Last updated on GMT

(Image: Getty/alphaspirit)
(Image: Getty/alphaspirit)
In a deal worth $640m, LabCorp has sold its Covance Food Solutions business to Eurofins Scientific to focus on its "core lab business."

“The sale of Covance Food Solutions to Eurofins allows us to focus on our core mission of improving health and improving lives, and at the same time better positions Covance Food Solutions to serve the global food supply industry,”​ said David P. King, chairman and CEO of LabCorp.

“Over the three years LabCorp has owned Covance, it has become clear that the greatest opportunities for us to create lasting value come from the core lab business, the contract research organization, and the enterprise-wide combination that is beyond lab and beyond CRO,”​ he said in a press release.

Covance Food Solutions operates within LabCorp's Diagnostics segment; however, it is not part of the Covance segment from an operating or reporting standpoint.

The transaction – further terms of which were not disclosed – is expected to close in the third quarter of 2018.

Ross J. Muken, an analyst at Evercore ISI, said the move “is a sensible transaction”​ for LabCorp. The food business was acquired in 2015 as part of LabCorp’s purchase of Covance – and while its growth is “appealing,”​ Muken said that the business “does not fit in with either the base Dx business nor management’s ambitions for the CRO (and in turn the combined entity).”

Neither LabCorp nor Eurofins are providing any additional comment at this time.

Process improvements 

LabCorp in April 2017 announced the implementation of a two-phase plan​ intended to create operational efficiencies over the next three years. As per the SEC filing, the plan’s second phase focuses on long-term structural changes “designed to create a more efficient business model.”

In the months following, Covance acquired the global CRO Chiltern for $1.2bn​. John Ratliff, Covance CEO, told us at the time that “Chiltern enhances Covance’s existing customer offering to include a dedicated focus on the high-growth emerging and mid-market biopharma segments.”

Following the acquisition, Covance launched a new dedicated offering​ for biotech, medical device, and diagnostic companies in January 2018.

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