|LabCorp CEO David King|
LabCorp is diversifying. The big diagnostics player ($LH) has swooped in to buy the contract research organization Covance ($CVD) for $6 billion in cash and stock, confident that a combination of its expertise with Covance's approach to contract drug development will make for a successful merger.
The buyout, announced early Monday, will provide Covance shareholders with $75.76 in cash and 0.2686 LabCorp shares for each share of Covance that they own. That's a 32% premium over Covance's $79.90 close on Friday. And Covance's shares shot up 25% this morning on the news.
Covance is keeping its brand--and its CEO--in the deal. While LabCorp Chairman and CEO David King will be in charge of the combined company, Joe Herring will continue to run Covance from its base in Princeton, NJ.
The CRO business has been undergoing a global transformation over the past few years. Several big outfits like Covance have emerged to compete for a steadily growing portfolio of outsourced research services, with Big Pharma looking to do less in-house work as biotech companies have expanded their own operations. In the process there's been a wave of mergers and acquisitions as the industry has consolidated, often under the guidance of private equity groups.
In Covance's case, the CRO has been making an ambitious run at doing more with the mountain of data available on trial results. Just days ago Covance did a deal with the Novartis Institute for Biomedical Research to meld its preclinical and clinical data together to create a new platform to assist in drug development. And recently it completed a partnership with Fresenius to create a special portfolio of data on chronic kidney disease and end-stage renal disease to assist developers with their studies in the field.
|Joe Herring, who will head the Covance subsidiary|
Diagnostics and drug research go hand in hand, says Herring.
"Covance generates more safety and efficacy data for the approval of innovative medicines than any other company in the world, and LabCorp has longitudinal diagnostic data from more than 75 million patients," Herring noted in a statement. "This combination leads the way to more cost-effective healthcare by improving the safety and efficacy of drug therapies, enabling accurate patient diagnostics, and advancing evidence-based medicines which will enable our clients to substantiate the value of their products and services to patients and payors."
"As a combined company, we will be well positioned to respond to and benefit from the fundamental forces of change in our business, including payment for outcomes, pharmaceutical outsourcing, global trial support, trends in pharmaceutical R&D spending, personalized medicine, and big data and informatics," said King. "Our increased cash flow will allow us to make an even greater investment in innovation, and we expect the combination of revenue growth from a broader platform, increased scale, synergies, and strategic deployment of cash flow to create significant long-term shareholder value. I am excited to welcome Joe and his team to the LabCorp family and am confident that together we can lead the healthcare diagnostics industry into the future and deliver enormous value for all of our stakeholders."
- here's the release