After Covance buy, LabCorp now eyes INC

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Medical testing company LabCorp ($LH) is seeking a deal to buy INC Research, one of the largest CROs in the world, as it looks to strengthen its position in diagnostics.

This is according to people “familiar with the matter” speaking to Bloomberg. The news wire also reported that the talks were preliminary. Spokespersons for the two companies said they don’t comment on market rumors.

Both companies reside in North Carolina, with INC having a market cap of $2.7 billion compared to LabCorp’s $12 billion.

LabCorp has in fact already been on something of a CRO deal spree, buying up NJ-headquartered Covance in an acquisition worth just over $6 billion last year.

And despite large CRO tie-ups typically being seen as a difficult proposition, analysts have been quick to welcome a potential deal between the two.

Jefferies & Co. analyst David Windley wrote in a research note that: “We actually think this deal could have merit.”

And even though LabCorp has already spent big on one CRO, Windley noted that LabCorp’s Covance business is “weak” when it comes to testing drugs for diseases that affect the central nervous system. That, he added, “has been INC’s strongest area.”

And Wells Fargo Securities analyst Gary Lieberman also noted that INC “brings certain capabilities” that LabCorp’s Covance unit lacks and that a deal “would make strategic sense.” INC has about 6,400 employees worldwide.

Although CRO deals “tend to be messy,” Lieberman added, INC “has one of the most robust processes for maintaining control over the clinical trial process, which we believe could be valuable when integrating a CRO with opportunities for operational efficiency.”

INC shares closed Tuesday at $47.91, down $1.77. Its shares have fallen 1% this year while LabCorp shares closed at $118.99, up 17 cents--its shares have declined 4% this year.

-check out the Bloomberg story