Laboratory Corporation of America Holdings (LH) has decided to acquire Clearstone Central Laboratories. Clearstone is a leading provider of central laboratory services for late-stage clinical trials globally. The transaction is expected to close in the second quarter of fiscal 2011. However, terms of the deal were not disclosed.
Business association between the companies has been there for quite sometime. Through an agreement entered in August 2010, LabCorp secured access to Clearstone’s global network of laboratories in China, France, Singapore and Canada, in addition to its own existing laboratories in the US and Belgium. They agreed to collaborate to provide standardized central laboratory testing for clinical trials to their respective clients.
LabCorp’s recent decision to acquire Clearstone will enable it expand its global footprint in key regions such as Asia Pacific. This will also strengthen the company’s companion diagnostics and personalized medicine strategy. Together, the two companies will be able to target diverse areas such as pharmacogenomics, microbiology, immunohistochemistry, allergy testing, cytogenetics and flow cytometry.
LabCorp has strengthened its footing in the diagnostics space through both the organic and inorganic route. Some of the significant acquisitions include DCL in Indiana, Westcliff Medical Laboratories in California where LabCorp has limited presence and Genzyme Genetics for $925 million in the area of esoteric testing and personalized medicine business.
Moreover, in April 2011, LabCorp decided to acquire Orchid Cellmark for $85.4 million, an international provider of DNA testing services targeted towards forensic and family relationship applications. Based on this deal, LabCorp will be able to develop a command over identity testing in the US and also establish its presence in this field in the UK. LabCorp plans to collaborate with leading companies and academic institutions to provide a wider portfolio of tests.
LabCorp recorded 40% of revenues from esoteric and genomic testing business during the last reported quarter and expects the contribution to rise to 45% over the next 3-5 years. Economic uncertainty reduces physician office visits, thereby impacting LabCorp’s volume.
Although the situation has been improving, any hiccup in the recovery process could be a dampener for the stock. Moreover, some of the contracts are scheduled for renewal in 2012, which might result in some price concessions. The company also faces stiff competition from Quest Diagnostics (DGX).
We are currently Neutral on LabCorp, which also corresponds to the Zacks #3 Rank (hold) in the short term.
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